WASHINGTON -- If you are a college graduate with student loans, there is one thing that should be on your ``to do'' list: consolidating your debts. And you don't have much time to take action. Each summer, the federal government recalculates rates on student loans. The variable interest rate on most federally guaranteed student loans is readjusted annually based on the final 91-day T-bill auction before June 1. The new rate becomes effective July 1.
    
Federal student rates have been at historically low levels, but loan companies are falling all over themselves to point out that will likely go up by as much as two percentage points. If that happens, it will be the first student-loan interest-rate increase in five years, according to Sallie Mae, one of the nation's largest student loan companies. If you consolidate before July 1, you could get a rate as low as 2.875 percent. Borrowers already in repayment can lock in a rate as low as 3.375 percent. Left unconsolidated, federal student loans could go as high as 8.25 percent.
    
``With student loan interest rates set to rise significantly, borrowers have just over a month to take advantage of the lowest interest rates in 40 years," said Mark Brenner, president of College Loan Corp., a San Diego-based student loan provider. ``This is a once in a lifetime opportunity -- those who consolidate now and lock in the current low rates could save thousands of dollars over the lives of their loans.''

    
For example, let's say you have student loans of $20,500 (the average amount consolidated last year) and the federal rate jumps to 5.26 percent. Over a 10-year repayment period, Brenner points out a borrower would pay $5,906 in interest charges. But if the loans were consolidated at 2.875 percent for a fixed 10 years, a borrower would pay $3,112 in interest.
    
Of course, the above example assumes the federal rate would stay at 5.26 percent for the life of the loan. Since federal student loan rates are variable, rates could rise and then come down again. But if you lock in by consolidating, you won't have to worry about your rate going up.
    
If you do decide to consolidate, here's what you need to know:
     -- Don't procrastinate. Lenders require completed consolidation applications to be received by June 30.
     -- You might not get the low rates of 2.875 percent or 3.375 percent. When you consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest eighth of a percentage point.
     -- Call around before settling on one lender. Loan terms differ. For instance, College Loan Corp. (as well as other lenders) offers an additional .25 percent reduction in your interest rate if you sign up to have your loan payments directly debited from your checking account. The lender also will rebate 1 percent of a borrower's student loan balance after the first nine consecutive on-time payments. ``We've found that recent graduates really appreciate a check for up to $1,000,'' Brenner said. Many lenders will reduce your interest rate if you make a certain number of on-time loan payments. Some companies will reduce the rate after 24 on-time payments; others after 36. That difference is why it pays to comparison shop for a consolidate loan.
     -- You can consolidate your federal loans only once. Under the federal consolidation program, borrowers can bundle all of their loans into one fixed-rate loan and stretch out the payments to as long as 30 years, depending on the debt amount. The exception is if you have new loans that were not included in the original consolidation.
     -- Unfortunately you can't consolidate private bank loans with federally backed student loans.
     -- If you're married, don't consolidate your loans with those of your spouse. When you consolidate your loans with your spouse you both become liable for repayment of the loan even in the event of a divorce. 
     -- Typically if you choose to consolidate your loan right after you graduate,  you don't get the six-month grace period when borrowers are not required to begin repayment. However, some lenders will still give you the grace period. For example Nelnet, a student loan lender, is allowing new graduates who apply to consolidate immediately after graduation to keep their six-month grace period.
    
For more information on loan consolidation go to the Department of Education's Web site at www.loanconsolidation.ed.gov. Most important, use some of those research skills you hopefully gained while in college to find the best deal possible if you do consolidate.

Listen to Michelle Singletary discuss personal finance every Tuesday on NPR's ``Day to Day.'' To hear her reports online go to www.npr.org. Readers can write to her c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses are not always possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.
    
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