Student Loan Interest Rate to Rise 1.84% on July 1

On July 1, 2006 the interest rates on outstanding federal student loans are expected to rise to just over 7 percent, the highest rate in six years, and the rate on outstanding federal parent loans are expected to rise to about 7.8 percent.

Students, graduates and parents who have student loans can avoid the rate hike if they apply to consolidate their student loans on or before June 30. Student borrowers who consolidate before July 1st may be eligible to lock in a rate as low as 4.75 percent over the life of their loans, which would save the typical undergraduate borrower almost $3,500 over the life of his or her loan. Students and parents who have at least one loan through the federal government's Federal Family Education Loan (FFEL), Direct Loan or Perkins Loan programs may be eligible to lock in a low fixed rate over the life of their loans, but only if they consolidate by June 30, 2006.

Loan consolidation is beneficial to a borrower since it combines all eligible student loans into one new loan with one lender, one interest rate, and one monthly payment. When searching for the right federal loan consolidation program, it is important to consider the interest rate as well as the financial benefits offered for making direct withdrawal payments and for making your payments on time.

To consolidate, if you have a Direct Loan through the Department of Education you can call 1-800-557-7392 or apply on-line at http://www.loanconsolidation.ed.gov/. If you have a loan through the FFEL program, a bank-based loan, you can contact one of the companies that own or service your student or parent loans. If you have loans with more than one lender you can chose to consolidate through the Department of Education or with any lender that provides federal consolidation loans.

Sources: salliemae.com & house.gov