A college education may never have been more expensive - but financing that education may never be cheaper.

That's because the interest rate on most student loans will hit historic lows this summer.

Nine out of 10 outstanding student loans are federal Stafford Loans - and interest rates on that common form of financial aid will fall again starting July 1.

Stafford loans in repayment and issued after July 1, 1998, will be reset to 3.42 percent.

Interest rates on also-common Federal Parent Loans for Undergraduate Students (also known as PLUS loans) issued on or after July 1, 1998, will drop to a record low of 4.22 percent.

The new rates will be less than half what they were three years ago, and will be in effect until June 2004.

Chance at college

The rate cuts, announced this week by the Department of Education, mean that former and prospective students alike will see some savings over the life of their student loans.

"Record low loan interest rates may make the difference for many students considering whether to pursue postsecondary education," U.S. Education Secretary Rod Paige said Wednesday announcing the new rates.

Borrowers with $10,000 in student loan debt and a 10-year standard repayment plan can save about $362 in interest over the life of the loan.

Indeed, the lower rates make it even more attractive to borrow to pay for college - especially if stocks or stock mutual funds earmarked for college expenses have tumbled with the bear market.

Investors not wanting to sell those for a loss to pay college tuition should look into borrowing at the historically low rates. Then if stocks recover as much as is projected in the next four years, those can be sold to pay off the debt.

By then, the funds earmarked for college expenses may have rebounded, and can be used to repay the student loans.

Others can benefit

Former students also can benefit.

Most current borrowers will automatically see their monthly payments decrease because of the lower rates. Or, they could keep the same payments, meaning more would go to pay down the principal, repaying the loan faster.

Those with the multiple loans and the heaviest debts, however, should look into consolidating their student loans.

A consolidation loan repays the multiple loans with one larger loan, typically at a lower interest rate.

Some lenders, like Sallie Mae, knock off extra percentage points for large consolidations. Rates can be lowered even further with a history of on-time payments.

Former students also got a boost two years ago when the tax cut allowed a greater portion of the interest to be tax deductible.

Student loan interest is now deductible for the life of the loan, not just its first five years. And the deduction now phases out at higher income limits than before.

Contact Amy Higgins at 768-8373; ahiggins@enquirer.com; or 312 Elm St., Cincinnati, OH 45202. She cannot reply to all individual questions.