Borrowers scrambling to consolidate their student loans before interest rates rise on July 1 will have more options in choosing a lender.

An emergency spending bill, approved last week by the Senate, abolishes a rule that has required borrowers who have all their federal student loans with one lender to consolidate with that lender. Under the legislation, already passed by the House and expected to be signed by President Bush, borrowers will be allowed to consolidate with any lender.

The change comes as borrowers are nearing a key deadline. On July 1, loans on federal Stafford loans will rise to 7.1 percent from 5.3 percent. Borrowers who consolidate loans they're already repaying can lock in a rate of 5.375 percent for the life of their loans. Those who are in their "grace period" — the six-month interval between graduation and the time they're required to start making payments — can lock in an even lower 4.75 percent.

The change will benefit smaller lenders who are seeking a slice of the loan-consolidation business. Rates for federal student loans are set by the government, but many lenders offer discounts and incentives. Most of those lenders will reduce the rate by a quarter-point if borrowers arrange for automatic withdrawal from a bank account. Some will reduce the interest rate after a borrower has made a specific number of on-time payments.

Sallie Mae, the largest holder of student loans, warned in a statement that the rule change is likely to lead to more aggressive marketing from "consolidation brokers that are relatively new to the marketplace." Borrowers "need to be sure they are working with a company they know and trust," the company said.