Federal education loans and grants will become more affordable for students this week.
The interest rate for Stafford loans decreased by 0.8 percent from 6.8 percent Tuesday and will decrease during the next four years until it hits 3.4 percent. The decrease is a provision of the College Cost Reduction and Access Act, signed into law by President George Bush in September 2007.
Lawmakers made the controversial decision to fund the $20 billion bill by slashing federal subsidies to private lenders that provide the funding for all student loans and grants.
Recent graduates who consolidate their Stafford loans after Tuesday will receive an interest rate of 4.2 percent versus 7.2 percent on their combined loans, under the law.
The Stafford loan is the most popular need-based loan that students can receive. Each year, about 5.5 million students borrow through Stafford loans, which are awarded to families with an average income of $67,000 or less, according to the Congressional Research Service.
The Pell Grant will increase by $490 under the law, raising the highest available award to $4,731 for the 2008-2009 school year. About 5.5 million low-income students receive the grant each year. Students who are interested in the teaching profession are also eligible to receive a separate $4,000 grant each year, for a maximum award of $16,000.
"From a student perspective, this is a good thing," said Dan Weaver, assistant commissioner for business and support services for the Texas Higher Education Coordinating Board.
The federal government ensures that students will receive their allotted loan or grant, which is funded by banks. The federal government only intervenes if the loan is not repaid in a timely manner, Weaver said.
State-funded loans and grants will not be affected by the act, he said.
The new interest rate, now 6 percent, will save the average student borrower beginning college in 2008 about $2,570 over the life of his or her loan, according to a release from the office of the bill's author, U.S. Rep. George Miller, D-California. The loan limit will also increase to $31,000 for dependent students and $57,000 for independent students.
"This first interest rate cut is just the beginning of our efforts to remove the many financial barriers that prevent far too many qualified students from being able to pursue a college degree," said Miller.
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