Before you make your move, read Kantrowitz's loan-consolidation tips. While the savings opportunity is real, so is the marketing hype that can easily lead you astray.

Degrees with debt
These days, two out of every three undergraduate students (65 percent) go into debt an average of $19,202 to pay for college, according to the 2003-04 National Postsecondary Student Aid Study by the Department of Education's National Center for Education Statistics. With interest rates increasing the past two years, consolidation has become an increasingly attractive alternative. In fiscal year 2005, 2.5 million borrowers consolidated nearly $70 billion in student loans, up from $44 billion in fiscal year 2004.

Every summer, campus financial aid offices are flooded with questions from students like Riley McMinn, whose $40,000 in Stafford loans finally forced him to consolidate last summer.

"I didn't know anything about loans or interest rates or anything like that when I started as a freshman," says McMinn, who graduated with a master's degree in exercise science from the University of Mississippi in 2005.

McMinn acted "the day before (last year's) deadline" and consolidated. It not only dropped his interest rate from 4.87 percent to 2.87 percent and cut his monthly payment nearly in half, from nearly $400 to $230, but if he pays on time for 36 months, he'll shave an additional percentage point off his already low fixed rate.

Now out of school and employed at Baptist Memorial Hospital in Oxford, Miss., McMinn says he's glad he consolidated when rates were low.

"If my loan rate were any higher, I think it would be difficult. Now I try to make double payments when I can because it's such a small amount, and I get a tax deduction on the interest," he says.

'They've been bombarded'
Dewey Knight, associate director of aid at Ole Miss, says his office has put out numerous e-mails to every student cautioning them to ignore the marketing blitz, but by all means consolidate before the deadline. They've even put a consolidation section on their Web site that includes links to a "preferred list" of consolidators.

"They've been bombarded," says Knight. "We have had extremely heavy activity. We caution them not to do business with mail-order people or direct solicitors, that they should do business with their lenders or the preferred list of consolidators on our Web site."

Evan Icolari, associate director of financial aid at the University of Colorado at Boulder, says that although pre-deadline traffic into his office has been fairly consistent for the past three years, the marketing blitz that has accompanied this year's final Stafford/PLUS rate adjustment has made it difficult to guide students. CU also has a Web page devoted to consolidation.

"It would be nearly impossible for us to counsel them in detail about every program that exists," he says.

Mike Reynolds, director of student financial services at Auburn University actually discourages his staff from advising students on consolidation. He is particularly concerned that the lure of lower monthly payments ("Cut your payments in half!") will lead students to extend their loan terms unnecessarily.