Locking In Low Rates.

With interest rates on federally guaranteed loans for students and parents likely to jump by as much as two percentage points on July 1, those who want to lock in today's lower rates should refinance into a single consolidated loan now. On July 1 the rate on the Stafford Loan is expected to hit 6.5% for those still in school and 7.1% for graduates. By consolidating, you can get a fixed rate as low as 4.75% for students and 5.375% for graduates. Under a new law, those in school will not be eligible to consolidate after July 1.

Meanwhile, parents who consolidate their federal PLUS loans before then can lock in a rate as low as 6.125%. That's just a shade above today's 6.1% but far below the 7.91% that's expected to prevail when rates adjust according to a congressionally mandated formula on July 1. To consolidate, you must submit a signed application, available from your lender, by June 30. If all your loans are through the same lender, you have to go with that company. Otherwise, you're free to consolidate anywhere. Some lenders will reduce the interest rate you'll pay if you sign up for direct debit or pay on time for a set period. Under a new law, loans issued after July 1 will have fixed, rather than variable, interest rates. For next year the Stafford rate is expected to be 6.8%, and the PLUS 8.5%.

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Edited By Monica Gagnier and Anne Tergesen