Deadline Fast Approaching for Student Loan Consolidation

When she graduates from college on June 9, Anne, 22, will have a lot more to worry about than finding a job and an apartment.

At her father's insistence, she checked her student loan balances in early May and found she would owe $18,800 at graduation, far more than the $10,000 or $12,000 she thought she had borrowed. While she's somewhat more fortunate than the typical graduate this year, whose debt load averages $19,200, even a degree in finance didn't prepare her to make most of the decisions required to repay her loans with the least amount of money.

For most students, loans start to come due in about six months after they leave school. Few of them are aware of their repayment choices and what to do to repay the least amount. On July 1, the Federal government will recalculate the interest rates on variable student loans. Graduates need to act quickly to get the best deal available.

While Congress passed a law to fix Stafford loans made after July 1, 2006 at a 6.8 percent rate, there are many other types of loans on the books with variable rates. It's often in a student's best interest to consolidate multiple loans. However, even those with business majors typically don't know how to do this.

Each year the Federal government readjusts the variable interest rate on most Federally guaranteed student loans. The calculation is based on the final 91-day Treasury bill rate in effect prior to June 1. The new rate, expected to be higher than the current 6.54 percent, goes into effect July 1.

Both students and parents are eligible to bundle all their student loans into one fixed-rate loan. They are also permitted to extend the payments to 30 years from the standard 10-year repayment term, depending on the total amount of the debt. However, to avoid a possible rate increase, they must get their applications in by June 30.

There's also another reason to act quickly. Graduates who actually consolidate their Stafford loans during the six-month grace period after graduation are eligible for a 0.6-percent interest rate reduction.