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Slice payments on student loans

Drops in US interest rates open the door for some borrowers to refinance federal plans

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Here's welcome news for millions of current and former college students with government-backed tuition loans: Interest rates on the billions of dollars they've borrowed have hit the lowest level in decades.

Aggressive interest-rate cutting by the Federal Reserve Board has trickled down to federally backed Stafford loans, which students use to pay for tuition, and to the PLUS loans that parents use. On July 1, the interest rate on Staffords was lowered 2.2 percentage points to 5.99 percent. It's now 6.79 percent on PLUS loans, also down 2.2 percentage points.

A potentially bigger bonus for the 16 million people who owe $250 billion on student loans is that they may be able to bundle their existing loans into one - a consolidation loan - and likewise take advantage of plummeting interest rates.

Better yet, consolidated loans carry a fixed percentage rate, compared with the variable rates charged for unconsolidated loans.

"Locking in the [new] low rate serves your best interest," says Ryan Katz, a spokesman for Del Mar, Calif.-based Student Loan Consolidation Center (www.slclloans.com). Lenders, ranging from his company to the nation's largest banks and even the Department of Education (800-557-7392; www.loanconsolidation.ed.gov), typically don't charge a fee for consolidation, which has been available for years but is popular this year because of the hefty rate drop.

Consolidation simplifies the repayment process, allowing borrowers to make payments to one lender rather than many.

Borrowers can also stretch out their repayment period from the typical 10-year cycle to maybe 20 years. This cuts the burden on their finances and hopefully lessens chances of default, which the Department of Education estimated in 1998 to be at 6.9 percent of borrowers within the first 18 months of their repayment period.

Early this month, Taffney VandeVoorde consolidated her $22,000 in debt, cutting her monthly bill from $272 to $150, and stretched its 10-year term to 15 years. But the pharmaceuticals saleswoman from Bettendorf, Iowa, plans to extinguish her debt early by paying the original amount.

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