Dateline: 06/01/02

Interest rates on federal student loans will drop to the lowest rate in decades - only 4.06 percent - on July 1, Secretary of Education Rod Paige announced on May 30.  

"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."

Persons repaying Stafford loans taken out in July 1998 will see the interest rate of their loan drop to 4.06 percent, down from last year's 5.99 percent. Students who are now in school, within the six month grace period, or in deferment, will pay a 3.46 percent interest rate.

Interest rates for federal PLUS loans for parents will be set at 4.86 percent, down from 6.79 percent. PLUS loans are available to parents of dependent students to pay for their children's education.

While interest rates on consolidation loans are locked for the term of the loan, interest rates on federal student loans, like Stafford and PLUS loans adjusted each year under a statutory formula based on interest rates for 91-day Treasury bills.

More breaks for students in 2003 budget
If approved by Congress, the 2003 federal budget will increase the number of Pell Grants available to 4.5 million - half a million more than available at the end of 2000. In addition, the maximum amount of a individual Pell grant would increase by 21 percent, to $4,000 over a three-year period. To further enhance access to higher education, the proposed FY 2003 federal budget:

• 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)
  [Source: U.S. Department of Education] 

"Access to quality education can mean a better, brighter future for students from all backgrounds, and is essential to a competitive workforce," Secretary 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."

Reminder to teachers: Teachers in designated low-income school districts may be able to cancel up to $5,000 of their Stafford student loans under this Education Department program. 

More information on student loans? See the Federal Student Aid Primer.