For many graduating seniors, the coming freedom of graduation will not only bring the stress of acclimating to a new setting, but also the worry of paying back student loans. But with the significantly low interest rates, these students could save money by consolidating their loans now.

With tuition ranging from $8,202 to $13,730 for in-state students and $26,028 to $27,456 for out-of-state students, many students turn to loans to fund their education. In the last academic year, 14,200 students received some type of federal loan.

These loans, which require repayment after graduation, are a common source of stress for recent graduates. The average debt of a graduating student with a bachelor’s degree is $18,900, while an average student graduating with a master’s degree has a debt of about $36,900.

But students may be able to save money on these loan repayments if they consolidate their loans now. The Federal Direct Stafford Loan — a loan that provided 13,800 students with aid in the last academic year — has a variable interest rate, which varies with the interest rates for U.S. Treasury Bills. With the interest rate at a low 2.77 percent, Margaret Rodriguez, senior associate director of the Office of Financial Aid, advised students to consolidate their federal direct loans to lock into this low rate.

Students must consolidate their loans prior to July 1 — the date on which the Federal Reserve will change the interest rates — if they wish to keep this low rate.

“There are a lot of misconceptions. (Students) think that they can only consolidate after graduation,” Rodriguez said.

While students can consolidate federal loans prior to graduation, they cannot consolidate many private loans until they begin repayment.

The Federal Reserve projects the interest rate in 2006 will be 4.35 percent, rising to 4.42 percent in 2007 and 4.6 percent the following year.

Economics Prof. Andrew Coleman said these changes in Treasury Bill interest rates show that the Federal Reserve is moving away from its concern about recession and is worried about inflation in the future. “Of course, things can change. There could be large inflation, or there could be a large recession,” he said.

But with the predictions pointing in the upward direction, consolidating loans could help students save up to 10 percent on their debt, according to the Office of Financial Aid. Students can consolidate through the federal direct loan program online or though a private loan consolidation company, an option Rodriguez said she does not recommend.

“It can be confusing,” she said. “We feel that the direct loan program will be understanding towards the needs of students,” she added.

But Barry Coleman, project manager of Clearpoint Financial Solutions, Inc. — a credit-counseling agency based in Richmond, Va. — said students should not be afraid to use private lenders to consolidate. “We recommend that the students shop around and compare interest rates from different lenders,” he said.

LSA junior Becky Marx said she receives the federal direct loan and is very concerned about paying it back. Marx, who plays for the women’s softball team, just transferred from the University of Chicago, where she had a full-ride scholarship. “Softball’s my job, so I don’t have time to make money to pay (back the loans),” she said.

Marx said consolidation sounded like a good idea, but said she did not know enough about it. She said she blames the Office of Financial Aid for not educating students about consolidation.

“You have to go to them for information — they don’t really care if you get the information,” Marx said.

LSA and Art and Design freshman Tiffany Lambert receives the Federal Perkins Loan — a low-interest, need-based loan — and the federal direct loan. She said she would consolidate but has not done so yet because, like Marx, she does not know enough about it. She added that she is worried about the added expense after graduation.

“I want to make sure that my job will be able to cover my living expenses as well as (the loans),” she said.

This may be the last opportunity for students to keep this low of an interest rate on their federal direct loans. If Congress passes a section of President Bush’s proposed budget for fiscal year 2006, students would no longer be able to lock into a fixed rate when consolidating, according to the Detroit Free Press.

Students interested in getting more information on loan consolidation can visit the website of the Office of Financial Aid at

Law School student Michelle, who did not wish to give her last name because she did not want her level of debt to be public, said she will be $150,000 in debt when she graduates because of both her undergraduate and graduate education. She also said she would have consolidated her federal and private loans if she had known more about it, but she could see how the bureaucracy of the consolidation application process would stop some people.

“If you’re trying to preserve your credit (rating) and you don’t want any credit inquiries, you might not want to consolidate,” she said.


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