New federal student loan terms take effect

[July 02, 2008]  STARKE, Fla. (AP) -- Changes in the federal student aid program that took effect Tuesday will lessen interest rates for some students while increasing the amount they can borrow.

Among the biggest changes, the interest rate on new, subsidized Stafford loans to undergraduates drops from 6.8 percent to 6 percent. Subsidized Stafford loans are awarded to lower-income students, and the government picks up interest payments while students are still in school.

The rates are slated to continue to decline in stages over the next five years, part of congressional measures approved last year to increase student aid. Earlier this year, responding to the credit crunch, Congress also approved $2,000-per-year increases in what students can borrow from unsubsidized Stafford loans, which students can take out regardless of income.

Meanwhile, as part of a regular annual reset, borrowers with older, variable-rate Stafford or PLUS loans that they have not yet consolidated will see their rates drop by 3 percentage points.

Mark Kantrowitz, who runs the Web site finaid.org, estimates the changes in subsidized Stafford interest rates would save the average Stafford borrower between $2,000 and $3,000 over the course of a 15-year repayment.

Finally, maximum federal Pell Grants -- the main direct-aid program for low-income college students -- officially rise to about $4,730 per student.

The three programs -- subsidized and unsubsidized Stafford loans, plus Pell grants -- provide aid to roughly the same number of students each: about 5 million.

[Associated Press; By JUSTIN POPE]

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