Interest rates on federal student loans have dropped to 3.37 percent -- the lowest point in nearly 35 years -- saving millions of student loan borrowers money, U.S. Secretary of Education Rod Paige announced today.

"Low-cost student loans have made college a reality for millions of students and their families, and lower interest rates mean more money in the pockets of the borrowers," Secretary Paige said.

Compared to three years ago, when the interest rate was 5.99 percent, borrowers with $10,000 in student loan debt and a 10-year standard repayment plan can save $1,523 in interest over the life of the loan.

For borrowers with Stafford loans issued since July 1998, the new interest rate is 3.37 percent, down from 3.42 percent last year. For students who are still in school, within the six-month grace period or with deferred payment, the interest rate is 2.77 percent. Parent PLUS loans are set at a new rate of 4.17 percent.

Interest rates on most student loans are calculated based on a formula set by law. The formula differs depending on whether the borrower is still in school, a grace period, deferment or repayment.

Annually, 13 million students apply for federal student aid. This year, the Department of Education expects to issue $52 billion in new loans to more than seven million students and families.

President Bush's 2005 proposed budget includes several initiatives to prepare students, both academically and financially, to pursue a higher education. The president's budget request includes:

• $73.1 billion in available student aid, a 6 percent increase over the 2004 level; the number of recipients of grant, loan and work-study assistance would grow by 426,000 to 10 million students and parents.
• $33 million for Enhanced Pell Grants for State Scholars, which would increase Pell Grants by up to $1,000 for first-year, full-time students who complete a specific rigorous program of study in high school.
• $12.9 billion for the Pell Grant program -- an increase of $856 million -- to help more than 5.3 million low- and middle-income students -- an increase of 36 percent since 2000 -- pay for their education.
• $395 million for Historically Black Colleges and Hispanic-Serving Institutions that serve high proportions of minority and disadvantaged students.
• An increase in loan limits for first-year students -- from $2,625 to $3,000; current loan limits for first-year students have remained essentially unchanged since the early 1970s.
• Increased availability of extended repayment options for all students.

More information on federal student aid is available at www.studentaid.ed.gov or by calling 1-800-433-3243.

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