College seniors are just about to start graduating this year and they will face the reality of the student loans they have taken out during their college career. They will need to consider whether to consolidate the student loans and debt they have acquired and this process has become quite complex.

A year ago, it was easy to see why consolidation was the way to go when it came to these loans. You could lock in at low rates, only pay one bill, and maybe even extend your repayment options. That has all changed today as a result of rule changes and higher interest rates.

Some borrowers were aware of the changes that lay in store for them and have already consolidated. Some were not so lucky and now have fewer options.

The good news is that these interest rates are not going to skyrocket within the next couple of months. The climb will be gradual. The rate for Stafford loans is set to go up only 8 base points. This will bring it from 7.14% to 7.22%. Parents with PLUS loans will also see a small increase going up to 8.02% from 7.94%. In actuality, this only amounts to a few dollars over the period of the loan.

Those who just graduated should take action within six months. After that, the grace period runs out and they will once again be faced with higher rates. The other good news is that for those who do wish to consolidate, their options are far greater than they were before.

This is due to the fact that the government has abolished the ‘single holder’ rule. In the past, this meant that the borrower needed to consolidate with the same company that held the loan to begin with. Now that this is no longer the case, companies often offer attractive packages and this may be more involved than just looking at interest rates. Companies may offer a discount if the payment is automatically taken out of the borrower’s bank account every month. Another may offer to lower the rate after 36 months of timely payments.

Although these incentives offer more options, it does make the process more complicated as borrower’s may be confused as to what will serve them best. Kantrowitz suggests going with a loan whose benefits are available easily and immediately. There is no point waiting for 36 months for a cut-back when most of the loan has already been paid off. And because of things that are out of their control, it’s very hard for a borrower to make 36 monthly payments on time. Something as simple as a move could delay the payment for that month.

Consolidation is an appealing option for those wanting to extend their repayment period to lower their monthly bills. While this seems attractive, borrowers need to be aware that this could cost them much more money due to interest. You can always decide to change the repayment date at a later time.

Another thing to consider is that it may not be wise to consolidate all the loans. Consolidating large loans with high interest rates with small loans with much smaller interest rates simply does not make sense.

Deciding which way to go in the matter of consolidation can be tricky and it does involve studying the loans and what the exact agreement is. Consolidation is generally known as a great way to repay but this isn’t the case in every situation. Make sure you do the appropiate research before taking any action.