NORTH PALM BEACH, Fla. (Bankrate.com) – For borrowers of federal student loans, the breaks keep coming. Super­low interest rates on federal student loans are poised to drop even lower this summer, which means consolidation loan rates will fall too.

"More good news for borrowers," says Patricia Scherschel, consolidation product executive at Sallie Mae. "We're finding out how low rates can go."

On July 1, the interest rate on Stafford loans is expected to drop below 3.5 percent from its current record low of 4.06 percent. Stafford loans are the largest source of student loan funds in the country.

This record­breaking rate will apply to Stafford loans taken out after July 1, 1998, and will remain in effect through June 30, 2004.

The new interest rates on federal education loans will be finalized later this month. The U.S. Department of Education sets variable loan rates each year based on the rate for 91­day Treasury bills at the last auction in May.

If the rates were set today, the rate on Stafford loans would drop to 3.42 percent, and the rate on Parent Loan for Undergraduate Students (PLUS) loans would drop to 4.22 percent.

Lock in rates after July 1 Thinking about consolidating your student loan debt? Your best bet is to sit tight for a few weeks. Locking in rates after July 1, when interest rates are expected to fall, could save you some serious cash.

A student­loan borrower who consolidates $25,000 in Stafford loan debt after July 1 would save almost $2,000 over 20 years, about $8 a month, according to Sallie Mae.

"Borrowers need to know they have reason to wait and watch if they're thinking of consolidating," Scherschel says. With a federal consolidation loan, your lender pays off the balances of all the loans you choose to consolidate and then issues you a new loan.

The interest rate on a consolidation loan is determined by taking the weighted average of interest rates on the federal education loans the student has and rounding up to the nearest one­eighth of a percentage point, capped at 8.25 percent. The final rate will differ from student to student.

Many borrowers sign on for a consolidation loan because they need more breathing room in their monthly budgets. A consolidation loan can lower a borrower's monthly loan payment by as much as 40 percent and stretch out the repayment period.

If your student loan payments add up to more than 8 percent of your gross monthly salary, you're a good candidate for a consolidation loan.

Whether you choose to consolidate your loans or not, it's a great time to be a student­loan borrower. Federal education loans cost a lot more just a few years ago.

In the 2000­2001 academic year, student loan borrowers paid 8.19 percent interest on Stafford loans. Then in July 2001, the rate on Stafford Loans crashed down to a then record low of 5.99 percent, and it's been dropping ever since.

For details, check out the following federal student loan rates:

July 1, 2000 to June 30, 2001:
Stafford loans: 8.19 percent
Plus loans: 8.99 percent

July 1, 2001 to June 30, 2002:
Stafford loans: 5.99 percent
PLUS loans: 6.79 percent

July 1, 2002 to June 30, 2003:
Stafford loans: 4.06 percent
PLUS loans: 4.86 percent

Projected rates for July 1, 2003 to June 30, 2004:
Stafford loans: 3.42 percent
PLUS loans: 4.22 percent