Rates on Student Loans to Reach Record Lows

Interest rates on federally guaranteed student loans for the 2003-04 academic year are expected to drop to the lowest levels in the history of the programs, lenders said Wednesday.

That’s because yields on short-term Treasury bills are at generational lows. Rates on new and outstanding federal student loans are reset each July 1 based on T-bill yields at the end of May.

At a Treasury auction Wednesday the yield on three-month T-bills was 1.12%.

That will cut the maximum interest rate on so-called Stafford student loans to 3.42% in the 2003-04 academic year, from the current rate of 4.06%, for loans made since July 1, 1998, said John Falb, treasurer for College Loan Corp., a loan provider.

Stafford rates can be lower than that while students still are in school, and may be slightly higher for loans disbursed before July 1, 1998.

An Education Department official said the government would make an announcement on rates this week.

Rates on new loans that parents take to fund their children’s higher education -- so-called PLUS loans -- will fall to 4.22% from 4.86%, said Erin Korsvall, a spokeswoman for the nation’s biggest student loan provider, Sallie Mae.

Rates may be slightly higher for loans disbursed before July 1, 1998.

Last year, post-secondary school students took out $40 billion in new loans to fund their schooling, Falb said.