Net Gains: New Savings on Student Loans

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This year's graduates also are benefiting from this year's turmoil in the credit markets. Rates on variable rate student loans are tied to the 91-day Treasury bill, which dropped sharply over the past year as a result of the subprime loan crisis.

Keep in mind that graduate, medical and law school borrowers who are done with school and parents who took out PLUS Loans also qualify for consolidation and can lock in lower rates on pre-July 1, 2006, loans.

Other factors to keep in mind:

Consolidating a variable-rate loan during the six-month repayment grace period after leaving school or dropping to less than half-time enrollment can cut the locked-in rate by six-tenths of a percentage point.

Borrowers outside the six-month grace period can still consolidate but at a higher rate.

Borrowers currently enrolled in school cannot consolidate.

Depending on the amount of total student loan debt, some borrowers may be able to stretch out their payments to lower their monthly payments. But keep in mind this raises the overall interest paid over the life of the loan. From a cost point of view, a 10-year repayment period is best.

Consolidation loans are available for most federal student loans, including Stafford, PLUS, Perkins and Health Professional Student Loans.

There are more rules to know. To learn more, visit loanconsolidation.ed.gov and FinAid.org, a site that explains the financial aid process and includes a section on consolidation loans.

Reaping the benefits of loan consolidation may be harder this year, but the payoff will be worth it for those who qualify. Be patient.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning (www.fourpondsfinancial.com) in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com

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