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Updated at 2018/07/11

When college students leave school, they can borrow a Direct Consolidation Loan to combine various federal student loans taken out while in school into one loan and make one low monthly payment. Direct Consolidation Loans are not subsidized, meaning the government does not pay the interest on the loan when the student is enrolled in school or when the loan is in deferment. The names Direct Consolidation Loan and Direct Subsidized Loan sound similar, but the loans are different.

What Is a Direct Consolidation Loan?

Students who take out loans for college do so annually, and each loan is separate. A student enrolled in college for four years, who borrowed annually, graduates with four separate loans with four separate interest rates. The student might make one payment for these loans to the same loan servicer, but such payments can be pricey.

Consolidating all federal loans taken out while in school under a Direct Consolidation Loan results in a lower monthly payment and a lower interest rate. Borrowers may lose some benefits of the original loans when they consolidate, such as loan cancellation or special interest rates given at the time the original loans were taken out.

What Is a Direct Subsidized Loan?

Students borrow Direct Subsidized Loans based on their financial need as determined by information provided by the students, and their parents if they are still dependents, on the Free Application for Federal Student Aid (FAFSA). The loan pays for tuition per credit hour and any other school-related expenses such as housing, books and materials. Subsidized means the government pays the interest on these loans for the borrowers while they are enrolled in school at least half time, and during the six-month grace period after leaving school and deferment periods.

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