Last Chance for Low Student Loan Rates

The consolidation rate uses the weighted average of rates on a borrower's loans, rounded up to the next one-eighth of one percent. If you're still in school and paying current rates, the consolidation rate is 4.75% on Stafford loans. If you're already repaying a Stafford loan, the consolidation rate is 5.375%. That, too, will increase in July.

The difference between locking in now and waiting could cost you thousands of dollars in interest over the life of your loan, depending on the amount you've borrowed and the number of years in repayment.

Fixed Rates Set for New Loans

There's more bad news about future rates on Stafford loans. Under the new legislation, future Stafford loans will carry a fixed rate of 6.8%. Every year a new fixed rate will be announced. You'll be stuck with that rate until the loan is repaid or ultimately consolidated after graduation.

Rates on PLUS loans made to parents are currently 6.1% for loans disbursed between July 1, 2005, and June 30, 2006. The consolidation rate for those loans for parents of current students is now 6.125%. PLUS loans are also tied to the T-bill rate, and will jump sharply higher in June. Even worse, new PLUS loans for parents made after July 1 will carry a fixed rate of 8.5%.

There's nothing you can do about the higher rates on future loans. The same bill cut more than $12 billion from the federal student aid program. Before the bill was passed, I wrote a column urging students and parents to protest. But the big student loan lenders put the pressure on Congress to make refinancing more difficult.

So here's the message: If you have any student loans or PLUS loans for parents, start the consolidation process now.

How to Consolidate

If you have loans from only one source, you must contact that lender. But if you have loans from multiple sources, you can contact any student-loan lender to consolidate.