Grads' Study Assignment: Loan Consolidation

By Michelle Singletary
Saturday, May 19, 2007

As college graduation season comes to a close, the newly anointed degree-holders will have to face a new reality -- life with hefty education debt.

By the time they graduate, about two-thirds of students at four-year colleges and universities have accumulated student loan debt, according to the Project on Student Debt. That debt load averages $19,200 per student, and many graduates face the prospect of having to pay back much more.

Once all the partying is over, this year's graduates will start to ask: "What can I do about my student loan debt?"

Well, there is plenty to be done before the debt starts to come due -- in about six months for most. Graduates will need to act fast and think through their choices.

One move graduates should consider is consolidating their federally backed loans. This decision should be made before July 1. That's when the federal government will recalculate the interest rate on variable student loans. Although Congress changed the law so that Stafford loans made after July 1, 2006, are fixed at 6.8 percent, there are still plenty of loans out there with variable rates.

The variable interest rate on most federally guaranteed student loans is readjusted annually based on the final 91-day Treasury bill auction before June 1. The new rate becomes effective July 1 and it could increase from the current 6.54 percent.

Under the federal consolidation program, student and parent borrowers can bundle all of their loans into one fixed-rate loan and stretch out the payments to 30 years from the standard 10 years, depending on the debt amount.

You can consolidate your federal loans only once, unless you have new loans that were not included in the original consolidation. You can no longer consolidate while you are still in school. And when you do consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest eighth of a percentage point.

If you decide to consolidate to avoid a possible rate increase, you'll have to get your application in by June 30. Another reason to act fast: Graduates who consolidate their Stafford federal student loans during their grace period -- the six months after graduation -- are eligible for a 0.6 percent interest-rate reduction.

So here's a to-do list for college graduates with debt:

ยท Write down every student loan you have, including the amount and the name and contact information for the lender. If you aren't sure about this information, you can find details of your student loans by going to the National Student Loan Data System, which is the Education Department's central database for student aid. The Web site is

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