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Student Loans

Consolidate Student Loans Now

Rates on federal student loans are set to surge July 1, but you can avoid the hike by locking in your current rate.

Student-loan borrowers, take heed: As of July 1, the interest rate on outstanding Stafford loans will rise almost two percentage points, to 6.5% if you're still in school or in the grace period and to 7.1% if you've already started repaying.

You can avoid that hike by consolidating your loans and locking in the current rate, but act now. This window slams shut at midnight on June 30. Parent borrowers who have yet to consolidate should also get cracking. The rate for PLUS loans rises on July 1, from 6.1% to 7.9%.

When you consolidate, you're basically refinancing your loans. It's usually a one-time deal. If you consolidate your loans, you can't do it again if rates happen to fall -- unless you add a new loan to the mix. In that case, you'll lock in a weighted average of the current rates on all your loans if you consolidate more than one.

If you don't consolidate by July 1, the penalty for procrastination could amount to thousands of dollars, depending on future rates, which are set each year based on the 91-day Treasury bill yield from the last auction in May. If all your loans are with one lender, you'll have to apply to that lender to consolidate; otherwise, compare deals at

Next year, neither students nor parents will have to scramble to meet the summer deadline: Stafford loans disbursed after July 1, 2006, will carry a fixed rate of 6.8%, and PLUS loans will carry a fixed 8.5% rate.