At a time when the cost of an education is on the rise, a new lower interest rate for student loan borrowers should come as a welcome surprise.

Starting June 1 interest rates for student loans will drop to a record low of 2.8 percent.

Recent graduates stand to benefit the most with an interest rate of 2.82 percent if they consolidate their loans during their six-month grace period after they finish classes. All other student loan borrowers who decide to consolidate can lock into a 2.87 percent interest rate.

The interest rate on Parent and Plus Federal Student Loans also will drop to 4.22 percent.

Interest rates for federal student loans are indexed according to U.S. Treasury Department T-bills. The new lower rates will be effective for an entire year.

In order to qualify for the 2.8 percent interest rate, student borrowers must have taken out their loans after 1998. Borrowers who have already consolidated their loans are not eligible unless they have taken out another student loan since consolidation.

Students who choose to refinance through the Montana Student Assistance Foundation (SAF) will be eligible for a 2.5 percent rebate on the principal of their loans. The Montana Student Assistance Foundation holds more than $400 million in student loans.

"They actually have a full year to lock into this rate," said Keith Carparelli, the lender and school relations director at Montana SAF. "They can take advantage of that any time, but the rebate n I don't know how long that will last."

Because the Montana Student Assistance Foundation is nonprofit organization, any income generated is returned to borrowers. The rebates will continue to be offered at least through the end of the summer, Carparelli added.

Student borrowers can consolidate with Montana SAF online through the organization's Web site at www.safmt.org.

Reporter Laura Tode can be reached at 447-4081 or by e-mail at laura.tode@helenair.com.