Students rush to consolidate loans before July 1

That kind of money can be a concern. Financial management corporation AllianceBernstein's recent survey of more than 1,500 college graduates found that paying back loans was a "very or somewhat difficult" task for 74 percent of them, and that the need to repay loans made nearly half of borrowers postpone the purchase of a home and saving for retirement.

As such, loan consolidation is quite a competitive business. Many lenders offer borrowers incentives: If you make your first 36 payments on time, some will reduce the interest rate by 1 percent; or if you allow the lender to withdraw payments directly from your checking or savings account, your loan rate drops by 0.25 percent.

While Scherschel claims that consolidation takes "only 10 or 15 minutes," and can be done online, the process may take more time, depending on the individual. Consolidation rates are for federal education loans only; it cannot be applied to private loans or credit-card debt, except where expressly provided for with lenders under alternate programs. Many loans have a minimum-balance requirement for consolidation that varies by lender.

Consolidation must be carried out with the bank that has managed one or all of the student's loans. In the barrage of consolidation mailings that students receive, mistakes are common - and can cost the borrower precious time.

Cindy Bailey, executive director of education finance services at the College Board, warns of another danger in responding to consolidation offers:

"A lot of students consolidate who shouldn't, and they end up paying way more in interest than they need to," she says. "Consolidation extends the repayment period, and more payments - even if they're smaller - are more money."

Ms. Bailey says that an interest rate increase won't be devastating to students.

"Ninety-five percent of all students pay their loans back, and pay them on time," she says. Bailey recommends that students concerned about repayment plans consider other student-friendly repayment plans, such as income-sensitive ones that ratchet up monthly payments as the student earns more money.

Ms. Boushey, the economist, says that if loans are left unconsolidated, a student will notice "a little bit of a bite."

"It's going to be a marginal difference, but for a graduate who's really struggling right now, it could determine whether or not they can keep up [with payments]," she says.

But Bailey warns of one even costlier mistake young people make: avoiding college. "Even if the interest rate were higher, the payoff is so much more tremendous," she says. "The only thing more expensive than going to college is not going to college."

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