Students Get A Break On Loan Rate

Interest rates on more than $120 billion of federal guaranteed student loans will drop about half a percentage point July 1, saving the average borrower $60 in the coming year.

The lower rate, which also applies to new loans, is based on the decline at the Treasury’s three-month bill auction in late May to 4.621 percent from 5.155 percent a year earlier. Loan rates are set at 2.3 percentage points above the Treasury bill benchmark, and change annually.

For subsidized student loans, where the government pays the interest on the loan while the borrower is in school, the effective interest cost falls to about 3.32 percent, accounting for interest tax deductions, according to the Coalition for Student Loan Reform.

“When you factor in tax deductibility and other government benefits on the loans, especially the subsidized loans, it is one of the cheapest forms of credit around anywhere,” said Mark Cannon, executive director of the coalition.

The $60 savings from the new loan rate of 6.92 percent is based on the average loan of about $12,000 for undergraduates.

Treasury bill yields are lower than a year ago because the Federal Reserve has cut short-term interest rates three times between last September and November. .

About $33.2 billion of new federal-backed student loans were issued last year, up 2 percent from 1997.

Youth fund waves minimum

Stein Roe Young Investor (1-800-345-6611), a growth-stock mutual fund with a newsletter geared to kids - and a portfolio of stocks they’ll recognize, such as McDonald’s Inc. (MCD) - is waiving its minimum investment through July 30. Now, for a buck, you can open an account for your child, grandchild or any other fledgling investor.

The fund has outperformed the S&P 500 index over its five years of existence.

Another fund you can give to kids, American Century Giftrust (1-800-345-2021), like most small-cap funds, hasn’t performed so well over the past few years. But it surged 14 percent over the past 10 weeks while the S&P was up just 2 percent. Recipients are locked in for at least 10 years, but that’s not such a bad idea for young investors.

Minimum: $500. Top holding at last report: Express Scripts Inc. (ESRX), a pharmacy benefit manager that’s returned 75 percent in the past 12 months.