"...Technology is transforming the way we live  and work. In order for our citizens to be able  to seize the opportunities of a new era, they're  going to have to have skills that can be only  learned through a post-secondary education." -- President George W. Bush

The College Cost Reduction and Access Act of 2007, which was signed into law by President Bush on September 27, 2007, generally reduces the cost for undergraduates who qualify for federally guaranteed loans. The maximum interest rates, as well as the fees, that lenders can charge for these

Help From Uncle Sam At Tax Filing Time      Here's a quick run down the main tax breaks associated with higher education that you can claim on your tax return:      Tuition deduction - This tax break for qualified tuition expenses is phased out when income reaches certain levels. For 2007, the maximum $4,000 deduction is allowed for joint filers with modified adjusted gross income (MAGI) below $130,000 ($65,000 for singles). A $2,000 deduction is available to joint filers with MAGI up to $160,000 ($80,000 for singles).     For this purpose, qualified expenses include tuition, books, supplies and equipment, but not room and board.     The tuition deduction is available through 2007. Unless Congress takes further action, it will expire at the end of this year.      Education tax credits - There are two separate tax credits for qualified higher education tuition and related fees. Both are phased out at relatively modest income levels. For 2007, the phase-out takes place for MAGI between $94,000 and $114,000 for joint filers ($47,000 and $57,000 for singles).     1. For 2007, the Hope Scholarship Credit is equal to 100 percent of the first $1,100 of qualified expenses and 50 percent of the next $1,100 of qualified expenses for the first two years of school (maximum of $1,650 annually). This credit can be claimed for any student in the family.     2. For 2007, the Lifetime Learning Credit is equal to 20 percent of the first $10,000 of qualified expenses (maximum of $2,000 annually). In contrast to the Hope credit, the family may claim only one Lifetime Learning credit, regardless of the number of students in the family.     Note: You can't take either credit if you claim the tuition deduction -- or vice versa.      Student loan interest deduction - The tax code provides a deduction of up to $2,500 a year for interest on student loans, regardless of whether you itemize. Again, the deduction is reduced or eliminated for certain taxpayers. For 2007, the phase-out occurs for joint filers with MAGI between $110,000 and $140,000 ($55,000 to $70,000 for singles).     The tax rules for student loan interest often encourage borrowing by the student instead of the parents. Consult your tax adviser.     Unlike the tuition deduction and the education credits, the student loan interest deduction is  available for amounts paid for room and board.

loans is set by federal law.

Specifically, the new law cuts the interest rate on subsidized Stafford loans and increases the maximum Pell grants available to low-income families.

Stafford loans are funded by participating banks and credit unions and guaranteed by the state or other government agency. A student generally doesn't have to begin repaying the loan principal until he or she graduates. A Stafford loan may be subsidized, unsubsidized or a combination of the two. Subsidized loans are based on financial need and are interest-free while the student remains enrolled in school. Unsubsidized Stafford loans are not based on need and interest is charged once the loan proceeds are disbursed

In comparison, the federal Pell Grant program provides need-based grants to low-income undergrads and certain graduate students. Financial need is determined by the standard formula used to evaluate financial information on the Free Application for Federal Student Aid.

Note: Other resources, such as loans under the Parent Loan for Undergraduate Students (PLUS) program, are available to families of college students. Parents can apply for a PLUS loan anytime while the student is enrolled in school.

There are limits on federally guaranteed loans, depending on the type and the student's year in school. When federal loans don't provide enough money, students and their families turn to private education loans, which generally have higher rates.

Here are the key changes for families under the College Cost Reduction and Access Act of 2007:

• The rate for subsidized Stafford loans will be cut from 6.8 percent to 3.4 percent by 2011.
• The law caps student loan repayments at 15 percent of monthly income.
• The annual Pell grant ceiling is raised from $4,310 to $5,400 a year by 2012.
• The law offers forgiveness of student loan debt for certain borrowers who enter into public service careers (such as police officers and teachers).
• It also allows active duty military to defer loan payments.
• A controversial test program will be established requiring lenders to bid for the right to make federal student loans.

Financial Aid Measures Come at a Price 

While federal law sets rates and fees that lenders can charge for federally guaranteed loans, nothing prevents them from charging lower amounts. And up until the new law passed, many lenders offered a variety of student loan discounts or benefits to attract borrowers.

As part of the new law package, federal payments to lending institutions will be cut by a whopping $21 billion over a five-year period. To make up for this shortfall, some lenders have already scaled back on their student loan discounts.

For instance, many banks previously offered interest rate reductions for agreeing to automatic bank account debits of loan payments or for sticking to consecutive on-time payments. Others waived origination and default fees on subsidized Stafford loans. Some lenders have already cut rate reductions and reinstated certain fees for new loans and others are reevaluating borrower discounts.

The same cutbacks may be enforced on "consolidation loans" offered to qualified borrowers. With a consolidation loan, the borrower is able to combine multiple federal loans to lock in a fixed rate on a single loan. This is generally easier to handle and less expensive for the borrower.

The College Cost Reduction law has altered the student loan landscape. With the high cost of college, it's important for families to shop around and compare interest rates and borrower discounts. Consult with your financial and tax advisers about the best way to pay higher education bills in your situation. In addition to loans, there are many options such as saving in a 529 Plan, contributing to a Coverdell Education Savings Account, as well as taking tax breaks described in the right-hand box.