Good news! After July 1, if you have any unconsolidated federal student loans with a variable interest rate, you can consolidate at the low, low rate of 3.6%. Phenomenal!

Unfortunately there are, as this MSN article points out, a few catches to qualify for this rate, making the whole deal nothing more than a talking point for some of our elected officials.

Seriously. Very few people will be able to take advantage of this offer. And those who can have not made the smartest financial decisions regarding their loans over the years.

The rundown:

1. If your student loans were issued after July 1 2006 ... BAM! No low rate for you!
2. If you are still in school ... whoops! Sorry...should have dropped out. Can't touch this rate!
3. You consolidated right after graduating to snag a lower rate? Too bad so sad.

That's right, if you made the sound financial decision to lock in a "low" interest rate on your federal student loans shortly after you graduated, you are out of luck. Yep, that's MC Hammer dancing over there with that 3.6% interest rate singing, "da na na na can't touch this."

Senate Democrats have introduced a bill that would require lenders that participate in the federal loan program to lend money to any eligible student, without taking into account factors like income or the kind of college a student is attending. The bill is being introduced after outcry over the number of lenders that have elected to stop offering student loans for community college.

This is wrong in a bunch of ways. As Pat Watkins, director of financial aid at Eckerd College, told the New York Times, "Banks are not philanthropic agencies" and that if banks are required to make unprofitable loans, "a lot of the banks will just say, we're out of the business completely, you pushed us out."

That won't do a lot to help the "student lending crisis" that is making national headlines. In the long run, strong arming private companies into making loans they don't want to make won't do a lot to help anyone, and is likely to hurt the people it is designed to help: students.

But, as I recently wrote, a decline in the availability of loans for community colleges might actually be good for some students, as they'll pay for college in better ways: working more and being frugal. But in the meantime, lenders should be allowed to make the loans that make sense, and shouldn't be forced to make bad loans or no loans at all.

When I was getting ready to finance my college education, (after hitting up my parents) I looked to Federal Pell grants and the beloved FAFSA (Free Application for Federal Student Aid). But things have changed, and in the age of Facebook and online interconnectivity, it only makes sense that students are utilizing these new tools for borrowing.

Several companies have popped up in recent months that allow students to tap into cyber-resources. On Fynanz.com, students design a profile detailing goals, interests and financial need, and then non-institutional lenders can shop through profiles based on majors, academic institutions or other interests.

The terms are set by the student, who can choose to start paying it back immediately, pay only the interest, or wait up to 20 years. Rates are between 7% and 12%, a good chunk cheaper than the 16% that's more common for private loans.

GreenNote.com, which launches June 4, seeks to utilize a student's social network to solicit friends and family to contribute to a college fund. Much like Fynanz, the student creates a profile with personal details and academic interests. However, then the student invites friends and family to contribute, and hopefully, pass on the profile to other community members. There's something very encouraging about people being able to support young people they know, or who are in their circle, with small loans.

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The tightening in the student loan market continues: The New York Times reports that an increasing number of lenders are declining to offer loans for community colleges, presumably because the small denominations do not justify the costs of servicing. With more than 40% of undergrads attending community colleges, some are worried.

But here's the thing: while this might put off some students, I seriously doubt that it will deter the students who have the dedication to complete an Associate Degree. Community college just isn't that expensive, and the average student loan amount for these schools is about $3,200 per year, according to the College Board. Most people can find an extra $3,200 per year. Working an extra shift or two each week at a grocery store would do the trick. Or students could, gasp, drink a little less and sell old video games on eBay.

And here's the best part: students who are forced to work harder because they can't get loans will graduate debt-free which, as anyone struggling under the weight of tens of thousands in debt will tell you, is something to strive for.

Many students take out loans as a choice rather than a necessity. The continued tightening of the debt market for college students will force students to make better financial decisions, leaving them far better off in the long run.

According to BusinessWeek, "In recent months, peer-to-peer lending sites such as Prosper and Virgin Money USA have introduced student loans or started marketing existing offerings to families looking for college funds. Others, including startups GreenNote and Fynanz, are focused exclusively on making college loans."

It's not a surprising development. Peer-to-peer lending has been growing in popularity for years and the tightened credit market is making it tougher for some students to secure loans for college.

There may be a future in peer-to-peer student loans but I don't see it happening anytime soon. Here's why:

• Subsidized student loans are always preferable. Before exploring any private loans, college students should complete the FAFSA form and take steps to see how much they can borrow at artificially low interest rates.

There was a time when you prepared for college, "signed up" for student loans, and were virtually assured that the funds would be there for you. The idea of having to pay back big loans wasn't appealing, but you knew your education was worth it. The checks came, you went to the financial aid office to get them, and all was well.

But it's not quite so easy anymore. There's news that Sallie Mae, the nation's largest provider of student loans, may stop making new loans, at least temporarily. The company says the loans are no longer profitable, so it can't afford to do them anymore.

Last week, a news report brought to light a new issue: Student loan checks that bounce. The Boston Globe reported on a student who deposited a $16,000 student loan check, started using the funds, and then was notified that the check bounced. The check bounced because The Education Resources Institute Inc., a nonprofit agency that guarantees student loans, filed bankruptcy. The student will still get his funds after some paperwork is sorted out, but it has likely been a scary process for him.

Sallie Mae is a huge student loan company, and often times it can be difficult to get routed to the correct department to straighten out your loan issue.

Earlier this week I shared a simple plan for using your congressman to resolve student loan issues at any company, but today I'd like to share a way to get satisfaction if your issue is with Sallie Mae. The executive customer service department at Sallie Mae is known as the "Consumer Advocate Unit" and from my experience, is staffed with small group of knowledgeable and friendly people.

Both our congressman and our attorney general referred us to the consumer advocate unit, where we were given one point of contact. If this person was out of the office, whoever took our call would literally walk over to his desk and grab our file in order to help us out. On more than one occasion they called another lender on our behalf to arrange for the consolidation of loans away from Sallie Mae!

You can reach the consumer advocate unit at (888) 545-4199. Please use this number responsibly, and remember these people are empowered to help you. Treating the caller with respect and kindness, no matter your previous experiences with Sallie Mae, will greatly benefit you in the long run.

Consider:

• The credit crunch has a lot of people concerned that student loans will be difficult to come by. Companies including College Loan Corp., CIT Group Inc., NorthStar Education Finance Inc., HSBC Bank USA, M&T Bank and Zions Bancorp have recently stopped issuing federally guaranteed loans. In all, 50 lenders representing 12% of the market have stopped making these loans.
  
• Sallie Mae has said it will no longer offer consolidation loans for federal loans.
• State agencies in Iowa, Michigan, Montana and Pennsylvania have suspended their student loan programs.
• It's an election year.

What does all this mean? Congressional hearings of course! At 10 AM EDT, a hearing on the state of the student lending industry convened, and lawmakers and several proposals aimed shoring up the market are floating through Congress.

I'm not so sure a little tightening in the industry is such a bad thing though. Student loans have become easy to get, allowing students to graduate from college with $50 thousand or more in debt, severely hurting their ability to get a good financial start in their adult lives.

Fewer student loans may encourage kids to pursue lower-cost options for education, and that will be good for them long-term.

Isn't it time you started reaping the benefits of your local congressman's clout? Not yet ready to ask for a letter of recommendation for West Point? Have no fear because if you are the bearer of student loans and your loan company is shafting you, your congressman may be the key to a happy ending.

Getting some satisfaction with the help of your congressman or woman is so easy anybody can do it. Granted, like all problems and lending issues, it helps if you are in the right and have been paying your lender what the terms state. But this strategy may work even if you are close to being handed off to a collection agency.

As a little background: My wife had all of her student loans through Sallie Mae, affectionately referred to around our house as the devil. Several of these private loans which Ms. Mae was holding on to were pulling in 13.25% interest! We had included some of these loans in an initial federal consolidation which never worked out. Apparently the incoming fax line at Sallie Mae was hooked right up to a paper shredder because they never received our requests to consolidate. We tried again to consolidate my wife's private loans with Wells Fargo, who, just like our federal consolidator, never received a response from Sallie Mae. Fed up with the problems we were having, I did what any rational person would, I called my local news stations call for action. This is where I found out I could contact my congressman to get some satisfaction.

Back on February 16th, Democratic Congressman Paul Kanjorski and 20 other members of his party sent a letter to Treasury Secretary Henry Paulson asking him -- without being specific -- to do something to shore up the student loan market: "We urge you to work without delay ... to address this problem before it significantly decreases access to higher education opportunities for students and their families."

Student lenders have since been insisting that everything is peach in that market but now the first shoe seems to have dropped. The Pennsylvania Higher Education Assistance Agency, one of the largest student lending agencies in the country, has announced that it will stop making federal-guaranteed loans starting in early March.

With the credit market tighter than it's been in years, industry experts are predicting that student loans will be more expensive and harder to get for students looking to pay for the fall 2008 semester.

According (subscription required) to the Wall Street Journal, "Some observers are convinced that if lenders dependent on asset-backed securities leave the market, big banks with other sources of capital will step in and fill the void, especially for loans guaranteed by the federal government, which accounted for more than three-quarters of the $77 billion that students borrowed for the 2006-07 academic year."

But students and their parents should look at a tightening of the student loan market as a good time to reassess priorities and consider alternatives means of paying for college or cutting the costs of education. For a long time, there has been a wide discrepancy in the lending market. Students have been allowed, and often encouraged, to borrow far more money to finance their educations than is necessary or intelligent.

Unfortunately, this has led to some poor decisions: people taking out massive amounts of loans to attend private colleges when they could have gone to public colleges with no loans. Other students live in more expensive off-campus housing or lead relatively lavish lifestyles while they accrue large amounts of student loan debt.

The credit crisis is a good time to get real. Loans can be an OK way to pay for college but there are a lot of better ways: looking for less expensive but comparable alternatives to name-brand colleges, work-study programs, working hard during the summer and ::gasp:: saving the money, and living a generally frugal lifestyle during college.

College can be a good time to develop the habits that will lead to future financial success, and borrowing massive amounts of money when you don't need to is not a good habit to develop.

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A piece in the USA Today looks at the rising cost of college and the stark reality that students hoping to attend private colleges face: With the exception of the most elite schools in the country, which are able to offer very generous financial aid to students they want, you'll probably have a hard time getting through a private college without student loans.

I'm a big fan of avoiding large student loans, even if it means not going to your first choice college: A degree from an elite university might give you more options but graduating with a 6-figure debt load eliminates a lot of those options: you pretty much have to take the highest-paying job you can find just to service your loans.

In the first few months of WalletPop's existence, our writers have offered some valuable tips on choosing a college and paying for it. In our Recession Watch series, Julie Tilsner had some great advice for parents of college-bound kids. I wrote about Kiplinger's list of the top public colleges in America and an interesting way to save money on textbooks: rent them! We also had a piece on colleges that are completely free.

College is one of the biggest expenses of most peoples' lives but if you're willing to be creative and forgo the status symbol that is a degree from a private college, you can make it a lot less painful.

Sallie Mae (officially called SLM Corp) announced Thursday that it would begin offering fewer students loans and would be more selective in the loans it would give. The company offer both government-backed loans and private loans. The company says the College Cost Reduction and Access Act of 2007 will make it harder for Sallie Mae to make money on loans. Specifically, the new Federal Family Education Loan Program may not offer Sallie Mae a chance to make any money at all by originating those loans.

Simply put, while it's nice that it may become less expensive for students to access student loan money, that result can't happen unless lenders are willing to offer the loans. And if lenders can't make money, they're not going to offer the loans. And I don't blame them.

As with most things, the business of student loans is just that... a business. While the companies making the loans are helping students, their primary goal is to turn a profit. If they can't do so, they're going to stop offering as many loans, which may prevent some students from going to college. Is this another example of legislation with unintended, but wide-reaching negative consequences?

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.