Urgent assignment: Consolidate loans -- Page 2

Graduate students, who borrow more, would naturally stand to save more. A student with $55,500 in debt could save $14,668 over 25 years. And someone who borrowed $74,000 could save $24,454 over 30 years, according to the university figures.

"It's such a low rate, there is no reason not to take advantage of that," says Kenneth Redd, director of research and policy analysis for the National Association of Student Financial Aid Administrators. "From a student's point of view, I would consolidate as much as I could as early as I could."

Morrow agrees. "It's an opportunity they certainly should take," says Morrow. "If they miss it, they probably won't see these rates again for 40 years."

But students face some trade-offs if they opt for an in-school consolidation. If students consolidate after graduation, they have a six-month grace period before they have to start making payments. They lose that if they consolidate while still in school.

That could make a difference to those students who might not have a job right after graduation and might not be able to afford the bills. "That would be an issue to be considered," says Baum, also a professor of economics at Skidmore College.

The type of loan makes a big difference. Current students should only consolidate variable-rate loans (such as the Stafford), not fixed-rate loans (such as the Perkins), says Nancy Coolidge, coordinator in the office of the president at the University of California. "There's nothing to gain and a lot to lose."

Perkins rates don't fluctuate and are not expected to increase, according to Stephanie Babyak, spokeswoman for the Department of Education.

Not only is the interest on Perkins loans subsidized while students are in school, but also the program allows unconsolidated portions of the loans to be forgiven if the borrowers enter certain professions, such as teaching, says Coolidge.

"Students will want to verify the possible loss of other benefits that are under the Perkins loan as a consideration before they consolidate," says Johnson.

Another point to check: Some lenders require that students accumulate a minimum amount of student loan debt before they are eligible to consolidate. "It's not a federal issue, more of a lender's policy," says Morrow.

Follow these steps to consolidate
Technically, obtaining a consolidation while still in school is a multistep process, says Martha Holler, spokeswoman for student loan provider Sallie Mae. But loan providers often handle all or most of the steps as one transaction. And under the new reading of the rules, students can start the process with a phone call, says Holler. It used to require written notification.

Holler explains how it works: First, the student asks to repay the loan. Reason: Unless the loan is in "repayment" status, it doesn't qualify for consolidation. Next, the student asks for a deferment until graduation, which is automatically extended if the student is in school more than half-time. Then, the student applies for consolidation. Last, the student signs a promissory note to repay the loan starting immediately after graduation, she says.

One more reason not to consolidate: The lender says no. Lenders can refuse a request for early repayment.

"Most lenders are cooperating with this because they understand the savings that students are going to derive from the opportunity," says Johnson.

Holler agrees. "I think the major lenders are indicating a willingness to grant early repayment," she says.

The deadline
With rates going up in July, students are facing one more tight deadline.

Just how late students can submit applications for consolidation depends a lot on the lender and the complexity of their applications. Some lenders, such Sallie Mae, have Web sites that allow students to complete and submit applications online.

Even so, students don't want to wait until 11:59 p.m. on June 30. It takes a while for the lender to complete the consolidation, says Redd. Still, "if a student applies before June 30, it should be OK in most instances."

Morrow expects heightened consolidation traffic from students who are graduating this year and thinking about the rate hike. Many students still in school may not even know they have the option and won't visit the financial aid office again until August or September, he says.

Lenders and financial aid offices have been on a publicity binge. "We're very interested in making customers aware this is an option," says Holler.

It's worth considering, even if it's not the right move for every student or every loan.

Says Morrow, "Anybody who's in school -- whether they are going back in the fall or not -- should take a look at this."

Dana Dratch is a freelance writer based in Atlanta.