Citibank student loan corp

Lenders are heaping discounts on top of lower interest rates.

College students have two reasons to cheer as they head for campus this fall. The first is a lower interest rate on their student loans: The standard rate on Stafford loans dropped from 7.46% to 6.92% on July 1. The second is a flurry of discounts and incentives that make college borrowing even cheaper.

The U.S. Department of Education has cut its origination fees on Direct Stafford Loans by one percentage point. Plus, you get an interest-rate reduction of 0.25 percentage point if you pay electronically and a 0.6-point rate reduction if you consolidate your loans before you begin repayment. On a $10,000 loan with a ten-year repayment schedule and a maximum interest rate of 8.25%, these breaks could add up to $631 savings over the life of the loan.

The Department of Education's Stafford loan is your only option if your school participates in the Federal Direct Loan program. But if it uses the Federal Family: Education Loan program (FFEL) for its Stafford loans, you can do even better by shopping among private lenders.

The best deal we found available nationally is a loan through the Utah Higher Education Assistance Authority. Participating lenders waive the standard 1% guarantee fee, reduce the interest rate by 1.25 percentage points if you pay by automatic debit, reimburse you for origination fees of more than $240 after 24 on-time payments, and reduce the loan's interest rate by another two points after 48 on-time payments. Total savings: $1,275 for a $10,000 loan with an 8.25% cap. (Cut costs even more by applying the savings to your principal balance.) To find a participating lender, call 800-663-1662, or visit www.uheaa.org. Citibank (800-692-8200; www.studentloan.com) and the Iowa Student Loan Liquidity Corp. (800-542-6005) are also offering generous discounts.

You can borrow even more cheaply if you live or go to school in Vermont or Maine. The Vermont Student Assistance Corp. (800-642-3177) offers discounts that can shave $1,423 off the cost of a $10,000 subsidized Stafford loan and $2,441 off an unsubsidized Stafford loan. A Superloan from the Maine Education Services Foundation (800-922-6352; www.mesfoundation.com) can save you $1,389 on a $10,000 loan.