Consolidation Can Be Consolation

Class of 2006 college graduates, listen up. It's been almost six months since you left school. During this time, you haven't had to pay a penny on your student loans.

That, as you know, is about to end.

Graduates typically get a six-month grace period after leaving school before their first student loan payment is due.

Soon the reality of all that debt is coming home to roost.

"This is a critical time for looking at your student loan payment situation. If you need monthly rate relief, go ahead and consolidate," said Patricia Scherschel, vice president of loan consolidation at Sallie Mae, one of the country's largest student lenders.

A consolidation loan allows you (or your parents, if they have a federal PLUS loan) to combine several types of federal student loans with various repayment schedules into one loan with one monthly repayment at a fixed rate. Your payments can be stretched from the standard 10 years to as long as 30 years, depending on your debt amount.

If you want to consolidate your loans at a lower rate, remember that it's a limited-time offer. You have just 180 days -- including holidays and weekends -- from your "separation date" to capitalize on the 0.60 percent interest rate reduction given to borrowers who consolidate their loans during the grace period.

What's your separation date? That is the official date on which someone graduates, leaves school or drops below half-time status. It may be your last day of class or your graduation day, Scherschel said.

If you don't know your separation date, check first with your lender. You can also find details of your student loans by going to the National Student Loan Data System ( http://www.nslds.ed.gov).

The separation date is important to know because if you consolidate your student loans during your grace period, you get the lower rate, which is based on the grace-period rate and is currently 6.54 percent for Stafford loans issued from July 1, 1998, through June 30 of this year. If you hesitate (or procrastinate), and don't consolidate before the 180 days are up, the variable Stafford loan rate jumps to 7.14 percent.

The rate you end up with can be different from the variable rate, because when you consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest eighth of a percentage point. If you consolidate after your grace period, you get a fixed rate of 7.25 percent. Do it before and you can lock in a rate of 6.625 percent.

And what a difference that can make.