ASK KIM
Don't Rush to Consolidate Student Loans
by Kimberly Lankford

My daughter just graduated from college and owes a lot of money in student loans. Should she hurry up and consolidate before the rates change on July 1?

No. After years of declining student-loan rates, it looks like rates will continue to fall when they make their annual change on July 1. The Department of Education hasn't issued the official word quite yet, but each year's rates are based on the last Treasury bill auction in May, which took place on Monday. Using the calculation set by Congress, it looks like rates will fall again -- from 3.42% for Stafford loans if you're in repayment, down to 3.37%, or from 2.82% down to 2.77% if you're in the six-month grace period after leaving school, according to Sallie Mae, the largest education lender. Rates on Plus loans are also expected to fall -- from 4.22% down to 4.17% on July 1.

You don't need to do anything to get these low rates. They'll automatically fall on July 1. But you can lock in low rates forever by consolidating between July 1, 2004, and July 1, 2005. The interest rate for consolidated loans is based on the average rates of the loans you consolidate, adjusted up to the nearest 1/8%. If you're in the six-month grace period for Stafford loans, you can lock in a rate of 2.875% forever, but you need to consolidate before that six-month grace period is over.

Lenders are making it easy to take advantage of the lowest rates. Sallie Mae, for example, has been holding consolidation applications since late March to see whether the new rates would be lower. You can apply now and, unless you tell them otherwise, they'll hold your application until the new rates take effect in July. Many other lenders are doing the same thing so you don't accidentally get stuck with higher rates because you apply a few weeks too early.

For more information about student loans, including information about several lenders offering special deals for consolidators, see Save a Bundle on Your Student Loans.