If you (or your children) have outstanding education loans, consolidation may permit borrowers to
lock in low fixed interest rates. Under a federally subsidized program, each July the Department of
Education sets fixed rates for the following 12 months. The fixed rates are tied to an index of the
91-day Treasury bill rate as of the end of May each year for all loans consolidated during the
12-month period.
In May 2004, the T-bill rate hit a low of 1.07 percent so the fixed rate that applies to loans
consolidated between July 2004 and June 2005 will be 3.37 percent for Stafford Loans and 4.17 percent
for PLUS Loans, for the life of the loan. By comparison, these loans can adjust to maximum rates of
8.25 percent and 9 percent, respectively.
To consolidate, first contact the companies that service the loans because the federal program
requires that you work with that loan-consolidation product first. If you have loans through several
providers, each should offer the interest rate set by the government rules but their terms and other
valuable discounts can vary. There are no fees, credit checks or collateral required, so steer clear
of any provider who states otherwise.
