Rates on two major federal education-loan programs will not rise significantly this year, welcome news for students and parents needing help funding college tuition. Starting July 1, interest rates for older Stafford and PLUS loans will rise 0.08 percentage points. For borrowers of the need-based Stafford loans who are still in school, interest rates will rise to 6.62 percent, while PLUS loan rates will rise to 8.02 percent, according to student-loan provider Sallie Mae.

For those who have already begun paying back their Stafford loans, the interest rate will be 7.22 percent.

The rate changes are small, but parents can save some money by consolidating PLUS loans before July 1, Sallie Mae noted.

The change in interest rates will only affect loans that were first made before July 1, 2006. For those made from that date and on, interest rates have been fixed at 6.8 percent for Stafford loans and at 8.5 percent for PLUS loans.

Consolidating before July 1 of this year will also allow students with Stafford loans to lock in a grace-period rate of 6.625 percent. The grace period expires six months after graduation.

By consolidating during the grace period, a typical 2007 graduate with $20,500 in loans can save paying $790 of interest over the 10-year life of a loan, according to College Loan Corp., a San Diego-based student loan provider.

“The key factor is to consolidate while you’re still in your grace period,” says John Falb, senior vice president of capital markets with College Loan Corp.

Consolidating can also help borrowers by lowering monthly payments and extending terms. Student-loan consolidation can cut monthly payments almost in half by extending the repayment period to up to 30 years from 10, according to Sallie Mae. However, you’ll end up paying more interest in the long run by extending the repayment period.

Those just getting out of college may also have an easier time with taking care of one monthly payment rather than keeping track of several. “Consolidation is an excellent tool for managing payment of your student loans,” says Patricia Scherschel, a vice president at Sallie Mae.

Author: Ruth Mantell From: http://www.foxnews.com

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