If you've just left college with a degree and a considerable amount of debt, here's some financial news that may take some of the sting out of having to repay thousands of dollars in education loans.
The interest rate on federally guaranteed student loans will drop to 3.37 percent effective July 1. That's the lowest rate in nearly 35 years, according to the U.S. Department of Education.
For borrowers with Stafford loans issued since July 1998, the new interest rate will be down from the current 3.42 percent, set last year. The Parent Loan for Undergraduate Students (PLUS) rate has been set at 4.17 percent, down from 4.22 percent.
The news gets even better for students who are still in school, have deferred paying their loans or are within their grace period, meaning the six months following graduation. Their interest rate will fall to 2.77 percent, from 2.82 percent. There are different rates for people currently paying their loans and those who aren't in repayment to reflect the amount of administrative work a lender has to do.
Federal student loan interest rates are variable and change every July 1. Rates are calculated according to a statutory formula, which changes depending on the payment status of the borrower.
Since the rates change automatically, you don't have to do anything to benefit from the rate drop. Your monthly payments will simply decrease.
However, borrowers do have the option to lock in a fixed interest rate by consolidating all their various student loans into one loan. Consolidation rates are also at historic lows, some at 3.375 percent, down from 3.5 percent a year ago.
Consolidating during the six months after graduation -- the grace period -- can bring even lower rates, down to 2.875 percent.
The fixed interest rate for a consolidation loan is determined by taking the weighted average of the interest rates of all the original federal student loans, rounded up to the nearest eighth of a percentage point. So when you consolidate, keep in mind that loans with higher interest rates than your Stafford loans could edge up the fixed rate you get.
Consolidation also allows you to stretch your repayment period from the standard 10 years to as long as 30 years, depending on your debt amount.
"If you can consolidate during your grace period, you can save thousands of dollars," said Mark Brenner, executive vice president for College Loan Corp., a San Diego-based student loan provider.
A graduate who locks in at the new rate of 3.375 percent will save more than $2,700 on a $20,000 loan repaid over 10 years, based on historical averages, Brenner said. Consolidate your loans within your grace period, which would give you an even lower rate, and you could save an additional $556 on the same amount and time period.
Parents who borrow through the federal PLUS program may also be eligible to consolidate and lock in low rates. The consolidation rate for PLUS loans will remain 4.25 percent, the same as last year.
If you have already submitted your paperwork to consolidate your loans, call your lender right away and ask if the processing can be delayed until July 1. Many lenders will oblige. In fact, some will automatically hold completed consolidation loan applications if borrowers will benefit from the lower interest rate.
If you have a huge amount of loans, I suggest you consolidate. That's because Congress is considering legislation that would eliminate the option to consolidate at a fixed rate. Some legislators want the student loan rate to always be variable.
I think it's a bad move, but there's a lot of support for this proposal.
For more information on whether you are eligible to consolidate your student loans, contact the Federal Direct Consolidation Loans Information Center at 800-557-7392 or www.loanconsolidation.ed.gov.
If you consolidated last year or the year before because of fears that rates might rise, don't be mad.
"Borrowers who consolidated already or in the last two years shouldn't be kicking themselves," Brenner said.
And what can you do if you consolidated your student loans when interest rates were much higher?
Sorry. Just keep paying that bill, because you can't take advantage of the new low consolidation rates. Federal law allows you to consolidate only once, unless you take out a new student loan and it was not included in the original consolidation.
Are you steaming about that?
Well, don't just vent your frustration to me. Contact your members of Congress. They are debating changes to the Higher Education Act, which governs the federal consolidation program.
For those of you just out of school, get busy reading your loan documents or calling lenders to figure out the best way to repay your loans.
Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her in care of The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or by e-mail at email@example.com.