Interest rates on need-based federal student loans will drop July 1, making these loans cheaper for the 5.5 million college students that qualify, lawmakers announced Thursday.

Need-based federal student loans are awarded to low- and middle-income students. Under the College Cost Reduction and Access Act, legislation signed into law last fall, interest rates on need-based, subsidized federal student loans will drop from 6.8 percent to 6 percent.

Over the next four years, these rates will continue to decrease until they reach 3.4 percent, legislators said.

According to a new report by the U.S. Public Interest Research Group, this initial interest rate cut will save the average student borrower starting college this fall about $2,570 over the life of the loan.

“With more students taking out larger loans to pay for college, the interest rate reductions going into effect this July 1st will save new low- and middle-income borrowers several thousand dollars over the life of their loans,” said Luke Swarthout, spokesman for the U.S. PIRG’s Higher Education Advocate.

The law includes several other provisions to lessen the burden of student debt including a $490 increase to the federal Pell Grant. The maximum federal Pell Grant award is now $4,731, up from $4,241. This increase is the first of five annual steps toward strengthening the Pell Grant by a total of $1,090 by 2012.

Also, under the new law, there will be an Income-Based Repayment program that allows student loan borrowers to repay their federal loans as a percentage of their income, and up-front tuition assistance to college students who commit to teaching high-need subject areas in high-need public schools after graduation and loan forgiveness to college graduates who enter public service professions after 10 years of public service and federal student loan repayments.