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Student loans offer a rare break this fall: lower interest rates

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Kristoffer Tripplaar/Sipa Press/Newscom

(Read caption) Private lender Sallie Mae, whose Reston, Va., headquarters are pictured, lowered its rates for student loans this fall and has eliminated origination fees. Interest rates have also fallen for government-sponsored student loans.

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Tuition isn't going down. Textbook prices are still on the rise. But at least one area of college financing is headed in the right direction: Interest rates on loans are falling.

Despite dire warnings about the effects of a government "takeover" of the student loan program earlier this year, the federal government has simplified the program, eliminated commercial lenders as middlemen, and lowered interest rates on its loan programs. Commercial lenders have also cut interest rates for the coming year and introduced perks that lower the cost even more.

Of course, this year's interest-rate decline has far more to do with the weak economy than government efficiency. Still, the low rates represent a rare break for students and parents struggling to pay tuition bills.

Understanding the various loan programs is also excellent preparation for the strategies that students will need later in life to handle mortgages and credit-card debt.

Practically every financial adviser recommends using all the available federal loan programs before venturing out in the private market for student loans. These government loans carry higher interest rates than the banks, but they're fixed-rate loans. That means parents and students can lock in their costs for decades to come. The low-rate private loans, which are variable, will rise in cost if interest rates rise.

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