ASK KIM
Consolidate Student Loans Now
by Kimberly Lankford

I just graduated from college and am not sure what to do with the loans I have. The current rates are still pretty low. I have looked at the consolidated loan programs, but am not too sure if they will benefit me much. Would it be worthwhile to consolidate?

It's definitely worthwhile to look into consolidating -- and to act quickly. Rates on Stafford loans for students and PLUS loans for parents have been falling over the past several years. However, they're about to rise significantly on July 1 -- from 3.3% to 5.3% for Stafford loans currently in repayment, or from 2.77% to 4.7% for people in the six-month grace period after graduation. And rates on PLUS loans for parents will rise from 4.17% to 6.1%.

Borrowers can avoid these rate increases by consolidating their loans by June 30, if they haven't done so already. When you consolidate, you lock in your current rates for the life of the loan (actually the weighted average of those loans rounded up to the nearest one-eighth percentage point). If you're in the six months after graduation, for example, you should be able to consolidate your Stafford loans at 2.88% for the life of the loan (people who consolidate past the grace period will pay 3.38% for Stafford loans). The consolidation rates for PLUS loans is currently 4.25%.

And many private lenders let you lower your rate even further if you have payments automatically debited from a bank account or make 36 on-time payments.

But you do need to return your application to the lender before June 30 to get these low rates. This will save you thousands of dollars in interest over the life of the loan. To see how much money you'll save, run your numbers through the student loan calculator at Finaid.org.

For more information about consolidating, see Rock Bottom, our article about the rising rates.