(MONEY Magazine) – Thanks to recent short-term interest-rate declines, many college grads will pay the lowest interest on federal student loans since the loan program began in 1965. On July 1, the rate for those currently repaying Stafford loans issued after mid-1998 dropped from 8.19% to 5.99%. (Rates also dropped on loans issued before then, but the amount hasn't been officially calculated yet.) Parents' PLUS loans issued after mid-1998 fell from 8.99% to 6.79%. Those currently paying off loans can expect a savings of about $136 in interest for every $1,000 borrowed. Those still in school or within six months of graduation can take advantage of even lower Stafford loan rates of 5.39%.

The new rates are guaranteed for only a year unless you lock them in by consolidating into a fixed-rate loan, which you can do through the U.S. Department of Education (www.loanconsolidation.ed.gov; 800-557-7392) or through a private lender. There are negatives to consider: You won't be eligible for further decreases should rates fall even more. Also, if you consolidate during your six-month grace period, you sacrifice the deferment and have to start payments within 60 days. Finally, if you extend your term when consolidating, you could end up paying more in additional interest than you saved.

--STEPHANIE D. SMITH