A Reprieve on Student Loans

Student borrowers who still have federal Stafford loans with variable interest rates (those issued before July 2006) just got good news.

Your interest rate -- one rate applies if you start payments during your six-month grace period; a slightly higher one applies if you start repayment thereafter -- will go down by several percentage points as of July 2008 and will stay at that level until July 2009.

You can lock in the new rate by waiting until after July 1 and consolidating your loans into a single loan with a fixed rate. There is one catch, however.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Many private lenders, including those companies that until recently financed the lion's share of consolidated loans, have stopped offering them, mostly due to recent legislation that made the deals less profitable. Mark Kantrowitz, of FinAid.org, predicts that all private lenders will ultimately abandon this business.

Solution? Consolidate through the Federal Direct Loan Program, which offers the same federally mandated terms on consolidations as private lenders do. Be aware that you must begin repayment within 60 days of the consolidated loan being processed. So to avoid losing part of your grace period, wait until three months after graduation to apply.

ALSO SEE: Paying for College