§ 685.220 Consolidation. ( a ) *Direct Consolidation Loans.* A borrower may consolidate education loans made under certain Federal programs into a Direct Consolidation Loan. Loans consolidated into a Direct Consolidation Loan are discharged when the Direct Consolidation Loan is originated.
( b ) *Loans eligible for consolidation.* The following loans may be consolidated into a Direct Consolidation Loan: ( 1 ) Subsidized Federal Stafford Loans.
( 2 ) Guaranteed Student Loans.
( 3 ) Federal Insured Student Loans (FISL).
( 4 ) Direct Subsidized Loans.
( 5 ) Direct Subsidized Consolidation Loans.
( 6 ) Federal Perkins Loans.
( 7 ) National Direct Student Loans (NDSL).
( 8 ) National Defense Student Loans (NDSL).
( 9 ) Federal PLUS Loans.
( 10 ) Parent Loans for Undergraduate Students (PLUS).
( 11 ) Direct PLUS Loans.
( 12 ) Direct PLUS Consolidation Loans.
( 13 ) Federal Consolidation Loans.
( 14 ) Unsubsidized Federal Stafford Loans.
( 15 ) Federal Supplemental Loans for Students (SLS).
( 16 ) Direct Unsubsidized Loans.
( 17 ) Direct Unsubsidized Consolidation Loans.
( 18 ) Auxiliary Loans to Assist Students (ALAS).
( 19 ) Health Professions Student Loans (HPSL) and Loans for Disadvantaged Students (LDS) made under subpart II of part A of title VII of the Public Health Service Act.
( 20 ) Health Education Assistance Loans (HEAL).
( 21 ) Nursing loans made under part E of title VIII of the Public Health Service Act.
( c ) *Components of Direct Consolidation Loans.* ( 1 ) *Subsidized component of Direct Consolidation Loans.* The term “Direct Subsidized Consolidation Loan” refers to the portion of a Direct Consolidation Loan attributable to— ( i ) The loans identified in paragraphs (b)(1) through (b)(5) of this section; and
( ii ) The portion of a Federal Consolidation Loan under paragraph (b)(13) of this section that is eligible for interest benefits during a deferment period under section 428C(b)(4)(C) of the Act.
( 2 ) *Unsubsidized component of Direct Consolidation Loans.* Except as provided in paragraph (c)(3) of this section, the term “Direct Unsubsidized Consolidation Loan” refers to the portion of a Direct Consolidation Loan attributable to— ( i ) The loans identified in paragraphs (b)(6) through (b)(12) of this section;
( ii ) The portion of a Federal Consolidation Loan under paragraph (b)(13) of this section that is not eligible for interest benefits during a deferment period under section 428C(b)(4)(C) of the Act; and
( iii ) The loans identified in paragraphs (b)(14) through (b)(21) of this section.
( 3 ) *PLUS component of Direct Consolidation Loans.* In the case of a Direct Consolidation Loan made before July 1, 2006, the term “Direct PLUS Consolidation Loan” refers to the portion of a Direct Consolidation Loan attributable to the loans identified in paragraphs (b)(9) through (b)(12) of this section.
( d ) *Eligibility for a Direct Consolidation Loan.* ( 1 ) A borrower may obtain a Direct Consolidation Loan if the borrower meets the following requirements: ( i ) On the loans being consolidated, the borrower is— ( A ) At the time the borrower applies for the Direct Consolidation Loan— ( 1 ) In the grace period;
( 2 ) In a repayment period but not in default; or
( 3 ) In default but has made satisfactory repayment arrangements in accordance with paragraph (2) of the definition of that term in § 685.102(b);
( B ) Not subject to a judgment secured through litigation, unless the judgment has been vacated; or
( C ) Not subject to an order for wage garnishment under section 488A of the Act, unless the order has been lifted.
( ii ) The borrower agrees to notify the Secretary of any change in address.
( 2 ) A borrower may not consolidate a Direct Consolidation Loan or a Federal Consolidation Loan into a new consolidation loan under this section unless at least one additional eligible loan is included in the consolidation, except that a borrower may consolidate a Federal Consolidation Loan into a new consolidation loan under this section without including any additional loans if— ( i ) The borrower has a Federal Consolidation Loan that is in default or has been submitted to the guaranty agency by the lender for default aversion, and the borrower wants to consolidate the Federal Consolidation Loan into the Direct Loan Program for the purpose of obtaining an income-contingent repayment plan or an income-based repayment plan; or
( ii ) The borrower has a Federal Consolidation Loan and the borrower wants to consolidate that loan into the Direct Loan Program for the purpose of using the Public Service Loan Forgiveness Program or the no accrual of interest benefit for active duty service.
( 3 ) Eligible loans received before or after the date a Direct Consolidation Loan is made may be added to a subsequent Direct Consolidation Loan.
( e ) *Application for a Direct Consolidation Loan.* To obtain a Direct Consolidation Loan, a borrower must submit a completed application to the Secretary. A borrower may add eligible loans to a Direct Consolidation Loan by submitting a request to the Secretary within 180 days after the date on which the Direct Consolidation Loan is originated.
( f ) *Origination of a consolidation loan.* ( 1 ) ( i ) The holder of a loan that a borrower wishes to consolidate into a Direct Loan must complete and return the Secretary's request for certification of the amount owed within 10 business days of receipt or, if it is unable to provide the certification, provide to the Secretary a written explanation of the reasons for its inability to provide the certification.
( ii ) If the Secretary approves an application for a consolidation loan, the Secretary pays to each holder of a loan selected for consolidation the amount necessary to discharge the loan.
( iii ) For a Direct Loan Program or FFEL Program loan that is in default, the Secretary limits collection costs that may be charged to the borrower to a maximum of 18.5 percent of the outstanding principal and interest amount of the defaulted loan. For any other defaulted Federal education loan, all collection costs that are owed may be charged to the borrower.
( 2 ) Upon receipt of the proceeds of a Direct Consolidation Loan, the holder of a consolidated loan must promptly apply the proceeds to fully discharge the borrower's obligation on the consolidated loan. The holder of a consolidated loan must notify the borrower that the loan has been paid in full.
( 3 ) The principal balance of a Direct Consolidation Loan is equal to the sum of the amounts paid to the holders of the consolidated loans.
( 4 ) If the amount paid by the Secretary to the holder of a consolidated loan exceeds the amount needed to discharge that loan, the holder of the consolidated loan must promptly refund the excess amount to the Secretary to be credited against the outstanding balance of the Direct Consolidation Loan.
( 5 ) If the amount paid by the Secretary to the holder of the consolidated loan is insufficient to discharge that loan, the holder must notify the Secretary in writing of the remaining amount due on the loan. The Secretary promptly pays the remaining amount due.
( g ) *Interest rate.* The interest rate on a Direct Subsidized Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the rate established in § 685.202(a)(10)(i). The interest rate on a Direct PLUS Consolidation Loan is the rate established in § 685.202(a)(10)(ii).
( h ) *Repayment plans.* A borrower may choose a repayment plan for a Direct Consolidation Loan in accordance with §§ 685.208, 685.209, and 685.221, and may change repayment plans in accordance with § 685.210(b).
( i ) *Repayment period.* ( 1 ) Except as noted in paragraph (i)(4) of this section, the repayment period for a Direct Consolidation Loan begins on the day the loan is disbursed.
( 2 ) ( i ) *Borrowers who entered repayment before July 1, 2006.* The Secretary determines the repayment period under § 685.208(i) on the basis of the outstanding balances on all of the borrower's loans that are eligible for consolidation and the balances on other education loans except as provided in paragraphs (i)(3)(i), (ii), and (iii) of this section.
( ii ) Borrowers entering repayment on or after July 1, 2006. The Secretary determines the repayment period under § 685.208(j) on the basis of the outstanding balances on all of the borrower's loans that are eligible for consolidation and the balances on other education loans except as provided in paragraphs (i)(3)(i) through (iii) of this section.
( 3 ) ( i ) The total amount of outstanding balances on the other education loans used to determine the repayment period under §§ 685.208(i) and (j) may not exceed the amount of the Direct Consolidation Loan.
( ii ) The borrower may not be in default on the other education loan unless the borrower has made satisfactory repayment arrangements with the holder of the loan.
( iii ) The lender of the other educational loan may not be an individual.
( 4 ) A Direct Consolidation Loan that was made based on an application received before July 1, 2006 receives a grace period if it includes a Direct Loan Program or FFEL Program loan for which the borrower was in an in-school period at the time of consolidation. The repayment period begins the day after the grace period ends.
( j ) *Repayment schedule.* ( 1 ) The Secretary provides a borrower of a Direct Consolidation Loan a repayment schedule before the borrower's first payment is due. The repayment schedule identifies the borrower's monthly repayment amount under the repayment plan selected.
( 2 ) If a borrower adds an eligible loan to the consolidation loan under paragraph (e) of this section, the Secretary makes appropriate adjustments to the borrower's monthly repayment amount and repayment period.
( k ) *Refunds and returns of title IV, HEA program funds received from schools.* If a lender receives a refund or return of title IV, HEA program funds from a school on a loan that has been consolidated into a Direct Consolidation Loan, the lender must transmit the refund or return and an explanation of the source of the refund or return to the Secretary within 30 days of receipt.
( l ) *Special provisions for joint consolidation loans.* The provisions of paragraphs (l)(1) through (3) of this section apply to a Direct Consolidation Loan obtained by two married borrowers in accordance with the regulations that were in effect for consolidation applications received prior to July 1, 2006. ( 1 ) *Deferment.* To obtain a deferment on a joint Direct Consolidation Loan under § 685.204, both borrowers must meet the requirements of that section.
( 2 ) *Forbearance.* To obtain forbearance on a joint Direct Consolidation Loan under § 685.205, both borrowers must meet the requirements of that section.
( 3 ) *Discharge.* ( i ) If a borrower dies and the Secretary receives the documentation described in § 685.212(a), the Secretary discharges an amount equal to the portion of the outstanding balance of the consolidation loan, as of the date of the borrower's death, attributable to any of that borrower's loans that were repaid by the consolidation loan.
( ii ) If a borrower meets the requirements for total and permanent disability discharge under § 685.212(b), the Secretary discharges an amount equal to the portion of the outstanding balance of the consolidation loan, as of the date the borrower became totally and permanently disabled, attributable to any of that borrower's loans that were repaid by the consolidation loan.
( iii ) If a borrower meets the requirements for discharge under § 685.212(d), (e), or (f) on a loan that was consolidated into a joint Direct Consolidation Loan, the Secretary discharges the portion of the consolidation loan equal to the amount of the loan that would be eligible for discharge under the provisions of § 685.212(d), (e), or (f) as applicable, and that was repaid by the consolidation loan.
( iv ) If a borrower meets the requirements for loan forgiveness under § 685.212(h) on a loan that was consolidated into a joint Direct Consolidation Loan, the Secretary repays the portion of the outstanding balance of the consolidation loan attributable to the loan that would be eligible for forgiveness under the provisions of § 685.212(h), and that was repaid by the consolidation loan.
(Approved by the Office of Management and Budget under control number 1845-0021) (Authority: 20 U.S.C. 1078-8, 1087a *et seq.*)
[78 FR 65836, Nov. 1, 2013, as amended at 81 FR 76083, Nov. 1, 2016; 88 FR 43905, July 10, 2023]