The rate for the different federal student loan programs are recalculated every July 1 based on a Department of Education formula, which is tied to the 91-day U.S. Treasury bill. For the first time in several years, the rate on the student loan did not go up by too much. The rate of the variable Stafford student loan went up from 6.80 to 7.22 per cent.

The rate of the PLUS loan also went up by the same amount. The PLUS loan is a federal student loan program for graduate students. It is also a program that allows parents to borrow money to put their children through school. The rate on the PLUS student loan went up to 8.02 per cent.

While the percentage increase of the US Department of Education student loan may not seem like a lot, given the amount of money that students borrow for college, every penny saved is well worth it.

Even though the percentage increase in the student loan rate did not go up by much, students graduating in 2007 who consolidate within their grace period of six months can save a lot of money. The reason for this is that by consolidating during the grace period, students can receive a 0.60 percent interest rate reduction on the U.S. Department of Education student loan. This translates into a saving of $700.

Saving $ 700 is not the only advantage of consolidating student loan. Student loan consolidation also allows borrowers with high balances to lower the amount they pay each month by fixing a rate of interest for the entire loan amount. In addition, borrowers can choose from a number of repayment options including standard repayment.

The current "grace period" consolidation rate for the student loan is 6.625 per cent; however, the rate will increase to 7.25 percent for borrowers who miss the grace period discount.

Once borrowers recognize the merits of student loan consolidation they need to shop around for the best deals to consolidate student loan. Some of the common incentives that are offered to borrowers include a reduction of 0.25 per cent in the interest rate for borrowers who choose direct debit on the standard repayment.

Borrowers who make on-time payments for 36 months are also eligible for a student loan rate reduction of 1 per cent on the remainder of the life of the loan. Students need to negotiate with the lending agency about the terms and conditions of the loan repayment.