07/01/2008 01:52 pm ET | Updated May 25, 2011

Savings on Federal College Loans for Millions of Students, Starting Today

Starting today, July 1, interest rates on need-based federal student loans will drop, making these loans cheaper for millions of college students. With our economy putting enormous financial strains on Americans and tuition prices continuing to soar, these new financial aid benefits could not be coming at a more critical time for college students. As families continue to explore their financial aid options for the coming school year, it is crucial to make sure that students are fully aware that significant financial relief, whether in the form of cheaper student loans, increased grant aid, or up-front tuition assistance, is available to help them pay for college this fall.

Under the College Cost Reduction and Access Act, which was signed into law last September, interest rates on need-based (subsidized) federal student loans will drop from 6.8 percent to 6.0 percent on July 1st -- making these loans more affordable for millions of low- and middle-income students. This is the first step toward halving these interest rates -- over the next few years these rates will continue to decrease until they reach 3.4 percent.

This interest rate cut will save the typical student borrower beginning college in 2008 about $2,570 over the life of his or her loan. Need-based federal student loans are primarily awarded to low- and middle-income students; according to the Congressional Research Service, 75 percent of need-based federal student loan borrowers have family incomes below $67,000. About 5.5 million students borrow these loans each year to help pay for college.

In addition, the law also provides the following benefits to students for the 2008-2009 school year:

* Increases the Pell Grant scholarship by $490 (raising the maximum award to $4,731 for the 2008-2009 year). This is the first of five annual steps towards boosting the Pell Grant scholarship by a total of $1,090 by 2012. About 5.5 million low-income students receive Pell Grants each year.

* Provides up-front tuition assistance to college students who commit to teaching high need subject areas in high-need public schools after graduation. Undergraduate students will be eligible to receive $4,000 in grants each year, for a maximum of $16,000. Graduate students will also be eligible for $4,000 a year in up-front assistance, for a maximum of $8,000.

* Provides loan forgiveness to college graduates who enter public service professions after ten years of public service and federal student loan repayments. Eligible public servants include firefighters, public defenders and prosecutors, first responders, law enforcement officers, early childhood educators and men and women serving in the military, and more.

Altogether, the College Cost Reduction and Access Act will boost college financial aid by $20 billion over the next five years -- and at no new cost to U.S. taxpayers.

(Crossposted at Campus Progress)