Loans for students get a kind cut By Samantha Levine Interest rates are down all over-home mortgage rates, auto-loan rates, and the granddaddy of them all, the prime rate. Federal student loans, too, are catching up with the trend. Last week, the Education Department announced that starting July 1, the interest rate for repaying Stafford loans, the most common federal loans for college and graduate students, will drop from the current 8.19 percent to 5.99 percent-the lowest level in at least 20 years. Students who are deferring repayment get an even better rate: 5.39 percent. For parents paying back federal PLUS loans for their child's education, rates fall from 8.99 percent to 6.79 percent. The rate cuts apply to loans issued after July 1, 1998, but lower rates also are on deck for older loans. The cuts mean real money; on a $16,000 Stafford loan, borrowers could save more than $2,000 over the standard 10-year repayment plan. Families can thank the Federal Reserve Board, which has cut interest rates several times over past months to shore up the slowing U.S. economy. Rates for federal student loans are reset every July. Good timing. "The timing is perfect" for families weighing college financing options, says Richard Flaherty, president of College Parents of America, an organization that advises parents about college. Those who had planned to pay for college by cashing in now-withered stock portfolios can fill financing gaps with the cheaper federal loans. Graduates and parents with multiple outstanding loans may also want to consider consolidating them-combining their balances into one loan with a new term and interest rate. Under federal rules, consolidation locks in a fixed rate for the life of the loan, which typically deters borrowers who think rates may drop. But the rates on tap are about as good as they get. "I don't think interest rates are going to drop that much further," says Raymond Loewe, president of College Money, a New Jersey firm that teaches financial planning for college. "There are times when you have to take a risk and lock in, and I would be tempted to do that now."
