The rate drop is automatic. You don't have to get off the couch and call your lender to benefit. But if you consolidate your loans after July 1, you can lock in a rate of about 3.5 percent for the life of your loan. Depending on how much you borrowed, the move could save thousands of dollars in interest.

This wasn't supposed to happen. Last July, the interest rate on student loans, which is tied to short-term Treasury bills, fell to 4.06 percent. Many experts said it was unlikely rates would go lower, so alert borrowers scrambled to consolidate their loans, locking in a 4.13 percent rate. That looked good at the time. But 3.5 percent looks even better.

For those of you who slept through class, here's a refresher course: When you consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest one-eighth of 1 percent. You also extend the payment period, in some cases by up to 30 years. For that reason, consolidation can be a godsend to cash-strapped graduates who are struggling to make their monthly payments.

But a loan consolidation is a serious commitment. Once you do it, you can't reconsolidate those loans, no matter how much rates decline in the future, which is why borrowers who consolidated three years ago, when rates were above 8 percent, are now enrolling in anger-management classes.

Still, it's hard to imagine you'll regret locking in a 3.5 percent rate. Rates are unlikely to go much lower, and if the economy recovers, they'll increase in 2004.

Most reputable lenders will accept your application now but wait until the end of May, when the new rate will be calculated, to process your loan, says Timothy Sabo, managing director for Nelnet, a student loan consolidator.

That way, if the benchmark T-bill rate rises before the end of the month, they'll consolidate your loan before July 1, locking in the current rate of 4.13 percent. And if the rate declines, as is widely expected, they'll wait until after July 1.

If you can't get your act together in the next few weeks, don't worry. Most experts say it's extremely unlikely rates will rise between now and the May 27 Treasury auction that will determine the new rates. The Federal Reserve said last week that it will leave short-term interest rates unchanged and hinted it could be leaning toward another interest-rate cut. An increase in T-bill rates by the end of the month is "incredibly unlikely," says Mark Kantrowitz, founder of FinAid.org.

If you're graduating this spring, you may be able to lock in even lower rates by consolidating in your grace period.

College graduates are generally given a six-month window before they have to start repaying loans. Interest continues to accumulate, but at a lower rate than the regular repayment rate. Students who consolidate during their grace period can lock in the lower rate for the life of their loans.

If the federal student loan drops to 3.4 percent, the grace-period rate will fall to about 2.8 percent, says Barry Morrow, chief executive officer of Collegiate Funding Services, which consolidates student loans. One downside is that you have to start making payments. Some large lenders will accept your application but delay processing it until near the end of your grace period.

If you have a federal student loan, you may have already received marketing materials from lenders promoting their consolidation programs. If all your loans are with the same lender and it offers loan consolidation, you must stick with that lender. Likewise, borrowers with just one loan can lock in the fixed rate, but must go through the company that holds the loan. Borrowers with loans from multiple lenders can consolidate with any. What to look for:

Many lenders will shave your interest rate by an additional quarter percentage point if you agree to have payments deducted automatically from your checking account. Many also reduce rates after you make a predetermined number of on-time payments. Nelnet, for example, will reduce your rate by 1 point after 48 months of timely payments. Also, look for a lender with toll-free customer service lines, knowledgeable representatives and counseling programs.