Friday is the deadline for current and former college students to consolidate their federally guaranteed loans and lock in new fixed interest rates that, starting Saturday, will rise as high as 7 percent.
Under the mandated change, Stafford loans, the loans most commonly used by students, will no longer come with an adjustable rate, which means a farewell to the long era of low interest rates.
As college costs outpace family incomes and the availability of nonloan financial aid grows more slowly than tuition, more and more students have turned to loans to finance their educations. For example, two-thirds of this year's graduates carry an average student loan debt of $17,500.
But the consequences of the new legislation are not as dire as they might seem. "If you have student loans, you can consolidate and lock in a low interest rate," said Sandy Baum at the College Board, which, in addition to administering college SAT tests, also tracks financial aid.
That means current students, those who graduated in 2006 and even those who graduated years ago can consolidate their outstanding loans and lock in a fixed rate lower than future borrowers will pay.
For current students and graduates, the interest rate is 4.7 percent. That will rise on July 1 to 6.54 percent. Those who graduated years ago can lock in a rate of 5.3 percent before the rate jumps to 7.14 percent. And those rates are forever, no matter how high interest rates rise in the future.
Economists say that in the current environment, including an expected increase in short-term interest rates from the Federal Reserve Board's Open Market Committee tomorrow, interest rates are only headed up for the foreseeable future.
According to the College Board's Baum, "When you consolidate, you can extend the amount of time that you take to repay the loans. And the longer you take to repay the loan, the lower your monthly payment will be."
Of course, that means paying more in interest.
Still, some 2006 graduates question whether they should consolidate this week because they will lose the six-month grace period under which they are not required to make any payments.
Bryan Terry, financial aid officer at New Jersey's Seton Hall University, believes that's shortsighted. "If we were talking about a house, if we were talking about a car, if we were talking about anything but an education, people wouldn't even ask that question."
Just how to consolidate, however, has caused some confusion.
Jonathan Martinez, 21, who graduated from Seton Hall in May, said he has been inundated by lenders seeking to consolidate his loans, some offering conflicting advice.
"I got e-mails starting in May, even before I graduated," he said. "I started getting around four to five e-mails a day." Martinez was also deluged with regular mail. "You hear very different, conflicting things," he added.
But financial aid officials across the country offer this straight advice:
Students should work with an established, well-known college lender.
Avoid the growing number of lenders created just to handle these consolidations who may not be in business in a few years.
Ask for incentives, such as interest rate reductions if payments are always made on time.
Read the fine print.
When in doubt, ask for help from a college financial aid officer.
Martinez said consolidating this week to lock in a low interest rate is a no-brainer. He has $20,000 in student loans and will save about $5,000 in interest payments over the life of the new loan.
But he, like other recent graduates, finds the timing of the federal action annoying. "I feel great that I graduated, but then this comes along. I really don't feel like I'm done."