The Federal Consolidation Loan program allows graduates to package all the federal loans they received to pay for their college education into a single loan at a fixed rate, and if they wish, extend the payback period.

With today's consolidation rates for student loans as low as 3.5 percent for most of last May's graduates and just over 4 percent for those out of school more than six months, borrowers would be unwise not to at least consider refinancing their college debt, experts say.

Parents who borrowed to pay for their child's education also can consolidate and lock in rates nearly 2 percentage points lower than those available last year.

Those who don't refinance are gambling that the interest on their variable-rate student loans, the rates can change every July 1, will not rise significantly during the typical 10-year payback period.

Others, particularly those whose early-career incomes leave them on a tight budget, may be missing a chance to reduce their monthly payments to more affordable levels by extending the repayment timetable beyond 10 years.

For borrowers who graduated in May and are still in the six-month grace period before repayment begins, the rates are especially sweet. Under the consolidation program, grace-period borrowers who took out their loans after July 1, 1998, can pay back debt from virtually their entire four years in college at 3.5 percent.

Borrowers who have been out longer and are repaying their loans can consolidate them with a fixed-rate average based on a combination of the rates they are paying for loans taken out before July 1, 1998, and the 4.06 percent repayment rate for loans originated since that date. In many cases, that average will be less than 5 percent.

By comparison, the average rate on federal Stafford student loans has been 7.55 percent over the last 10 years, said Richard D. George, general counsel for Great Lakes Higher Education Guaranty Corp. in Madison, Wis.

The Stafford loan interest rate, which is adjusted according to the three-month Treasury bill rate at the last auction each May, is the base figure used to set the fixed rate in consolidations. The Stafford loan program is the biggest source of student loan money in the nation.

With college becoming more expensive, the average national cost of tuition, fees, room and board last year was about $9,000 at public four-year schools and $23,600 at private colleges, student loans are crucial to enabling many students to attend. Sixty percent of undergraduates at four-year colleges borrow to help pay for their education, and 66 percent at private schools need student loans, George said.

Bundling federal loans from college and refinancing them at today's low rates over a longer term than 10 years makes sense for a lot of students just getting started on their careers, some experts say.

According to Sallie Mae, a graduate with $12,500 in student loan debt who consolidates at an interest rate of 4.25 percent would pay $94 a month over 15 years instead of $128 a month over the standard 10-year repayment period at the same interest rate. Projected comparisons are difficult to make because payback interest rates will vary over time if they aren't consolidated.

College loans are unique to each borrower, depending on how much and when the student or parents borrowed, and the borrower's income after graduation.

"Consolidation loans are essentially a custom fit," Scherschel said.

An increasing number of graduates are asking whether refinancing at a fixed rate would benefit them, said Triena Bodart, assistant director of the student financial aid office at the University of Wisconsin at Milwaukee.

The situation is more urgent for those who graduated last May and are still in the six-month grace period before repayment begins. They have only until this fall if they want to lock in today's historically low grace-period rate.

"If we do the consolidation before their grace period ends, their whole student loan for the whole time they were going to college is going to be at 3.5 percent," said Bernice E. Porath, student loan coordinator for Marshall & Ilsley Bank.

Students can take other steps to make consolidated loans even lower.

Sallie Mae said eligible borrowers with a balance of at least $10,000 can receive a rate discount of 1 percentage point after making their first 48 monthly payments on time. Borrowers also can receive an immediate quarter-point cut in their interest rate if they agree to have their payments automatically debited from their checking or savings account.
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