More Resources  Soundbites from Deputy  Secretary Hansen

U.S. Education Secretary Rod Paige announced today that federal student loan interest rates will drop to the lowest rate in decades - 4.06 percent effective July 1 - resulting in significant savings for borrowers.

"The Bush administration is committed to helping students and their families finance college and career training," Paige said. "Today's good news builds on the president's efforts to increase Pell Grants for needy students, and provide tax deductibility, tax relief, and low-cost loans for working families which become even more valuable as the cost of higher education continues to rise."

Borrowers with $10,000 in student loan debt and a 10-year standard repayment plan can save approximately $1,133 in interest over the life of the loan. The new rate for borrowers repaying Stafford loans issued beginning July 1998 is 4.06 percent, down from 5.99 percent last year; the rate is 3.46 percent for students who are in school, within the six month grace period, or in deferment.

Rates are calculated according to a statutory formula based on the 91-day Treasury bill plus 1.7 percent for in school, grace or deferment, and 2.3 percent for loans in repayment. PLUS loans for parents are set at a new rate of 4.86 percent. Rates for Stafford and PLUS loans disbursed prior to July 1998 are calculated using different statutory formulas and/or percentage add-ons.

The interest rates on most federal student loans are variable and are adjusted each year. But interest rates on consolidation loans are locked in for the life of the loan. The interest rate on consolidation loans is the weighted average of loans being combined rounded up to the nearest one-eighth of a percent. Borrowers should contact their lender or loan servicer to explore their financial options.

Under the Bush administration's budget proposals, the number of Federal Pell Grant recipients would increase to 4.5 million students - half a million more than before President Bush took office. The maximum grant increases 21 percent over the same three-year period to $4,000. In addition, the president's tax relief package would save working American families over $22.7 billion over the next five years, and:

• Eliminates the 60-month limitation on student loan interest deductions and increases the income levels of individuals able to claim the deduction. This change makes the tax benefit simpler to administer and increases the affordability of student loan repayment. ($3.4 billion over 5 years)
• Increases the annual limit on contributions to education savings accounts from $500 to $2,000. ($1.23 billion over 5 years)
• Adds a new above-the-line deduction for qualified higher education expenses. ($11.97 billion over 5 years)
• Allows tax-free distributions from Qualified Tuition Plans (Section 529 plans) used to pay educational expenses and permits private institutions to offer such plans. ($2.32 billion over 5 years)
• Makes the income exclusion for employer-provided educational assistance permanent and extends the benefit of the exclusion to graduate level courses. ($2.8 billion over 5 years)

"Access to quality education can mean a better, brighter future for students from all backgrounds, and is essential to a competitive workforce," Paige said. "The No Child Left Behind Education Act will help more students succeed academically, and the number of those students seeking greater challenges will grow. President Bush and I are committed to seeing that those opportunities are available and affordable to all."

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