U.S. Education Secretary Rod Paige promised financial relief to millions of students and borrowers struggling to pay college tuition bills when he announced today that federal student loan interest rates will drop to the historic low of 3.42 percent effective July 1.

"Record low loan interest rates may make the difference for many students considering whether to pursue postsecondary education," Paige said. "These new loan rates will mean significant savings for borrowers and will help make higher education more affordable for all students, goals that President Bush is seeking through his 2004 budget request now before Congress."

Borrowers with $10,000 in student loan debt and a 10-year standard repayment plan can save approximately $362 in interest over the life of the loan. The new rate for borrowers repaying Stafford loans issued beginning July 1998 is 3.42 percent, down from 4.06 percent. The rate is 2.82 percent for students who are in school, within the six month grace period, or in deferment. PLUS loans for parents are set at a new rate of 4.22 percent.

In order to provide borrowers with the lowest possible interest rates, Paige announced earlier this month that the Department would hold applications to consolidate loans through the William D. Ford Federal Direct Loan Program until new rates were announced.

Interest rates on most student loans are calculated based on a statutory formula of the 91-day Treasury bill plus 1.7 percent for in-school, grace or deferment, and 91-day Treasury bill plus 2.3 percent for loans in repayment. Rates for Stafford and PLUS loans disbursed prior to July 1998 are calculated using different statutory formulas. The interest rate on consolidated loans is the weighted average of loans being combined rounded up to the nearest one-eighth of a percent.

Paige also emphasized the Bush Administration's commitment to helping students from disadvantaged and working families have access to affordable, quality postsecondary education. "The President's budget request for the 2004 fiscal year provides more than $62.3 billion in new grants, loans and work-study opportunities-an increase of $2.7 billion or five percent-to serve 9.2 million students," Paige said.

Highlights of the Bush Administration's FY 2004 budget proposal include:

• A $1.35 billion increase for the Federal Pell Grant program for an all-time high of $12.7 billion, serving nearly 4.9 million low and middle-income students-one million more students since 2001. The funding would also address a shortfall related to the 2002-03 award year;
• Nearly $10 billion in tax relief for working families provided through a new above-the-line deduction of up to $4,000 annually in higher education expenses worth $2.9 billion, student loan interest deductions worth $700 million, $2.9 billion in Hope tax credits, and $3.0 billion for the Lifetime Learning tax credit;
• Expanding loan forgiveness from $5,000 to $17,500 for highly qualified math, science, and special education teachers serving in low-income schools; and
• An increase of $11.3 million for Historically Black Colleges and Hispanic-serving Institutions that serve high proportions of minority and disadvantaged students.

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

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