"Feels good signing bills. I haven't done this in a while," Obama quipped during the signing ceremony in the Oval Office.
The legislation links student loan interest rates to the yield on the 10-year treasury note.
Stafford loans for undergraduates would be set about 2 percentage points higher than the treasury yield. Loan interest rates for parents and graduate students would be set slightly higher than rates for undergraduates.
Congress failed to address the student loan rate before July 1, allowing the rate on some new student loans to double to 6.8 percent.
The bill signed Friday affects only new loans. Under the measure, undergraduates who take out loans for the coming school year would pay an interest rate of 3.86 percent for the life of the loan, based on treasury yields from the spring.
The bill caps the rate at 8.25 percent.