Once a student graduates, he/she has a one-time opportunity to consolidate all student loans and lock in an interest rate for the loan’s term. Students who are just graduating have a six-month grace period before repayments must begin. However, if loans are consolidated during that period, the interest rate will be discounted by 0.6%. If you’ve already consolidated your student loans, you won’t be able to consolidate again to take advantage of these low rates. However, if you didn’t consolidate and graduated more than six months ago, you may want to wait to consolidate until the new rates are released in May 2005. If rates go up, you can consolidate before July 1, 2005 and lock in the current rates. If rates go down again, you can wait until May of the following year to make the same assessment.

Your repayment period for the consolidated loan depends on the amount owed. For example, loans of less than $7,500 must be paid back in 10 years, while loans of $60,000 or more can be repaid in 10, 12, 15, 20, or 30 years. Since there are no prepayment penalties, you may want to use a long repayment period. That will lower your monthly payment in case you run into financial difficulty, but you can always send in more than the required payment to pay the loan off more quickly.

Before consolidating, check with several lenders. While interest rates are set by the federal government, many lenders will reduce your rate by .25% if you agree to automatic deductions from an account, and will reduce your rate by 1% after you have made every payment on time for four or five years.