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Interest rates on federal student loans recently jumped by one percentage point.
Undergraduate loans now carry a rate of 6.53% for the 2024-2025 school year, up from 5.50% last school year. Graduate direct loans have a rate of 8.08%, up from 7.05%. And PLUS loans for grad students and parents of undergraduates rose to 9.08%, up from 8.05% this year.
The new rates took effect on July 1, after being in a Treasury auction earlier this year.
This marks the fourth straight year that interest rates on federal loans for higher education increased, and the rates for the upcoming school year are the highest that students have paid in more than a decade.
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How interest on federal student loans works
Rates on federal student loans are set each year, based on the high yield of the 10-year Treasury note at auction in May. Interest on these loans is fixed, so the current rates apply to loans taken out between July 1, 2024, and June 30, 2025. All borrowers who take out federal loans pay the same interest rate in any given year; the only difference in rates comes from the type of loan.
Federal loans also carry a one-time origination fee, which increases their overall cost. The fees are currently 1.057% for all loans, except for PLUS loans, which carry a high 4.228% origination fee.
It’s typical for students to take out a new loan each year of school, so it’s not uncommon for a student earning a bachelor’s degree, for example, to graduate with four or more loans with different interest rates. Those rates remain the same for the life of the loan, unless the borrower chooses to refinance their student debt.
This year’s spike in rates could add up to hundreds of additional dollars a borrower would have to pay in interest. For example, an undergraduate student using a $7,500 loan for the 2024-2025 school year would pay about $465 more in interest over a 10-year period than if they’d taken out the same exact loan for the 2023-2024 school year.
Why are student loan interest rates increasing?
Federal student loan interest rates tend to follow the same trend of lending rates in the broader economy.
So the rise in student loan interest rates over the past few years is due in part to the Federal Reserve’s actions to combat inflation. While the Fed is expected to cut its benchmark rate later is year, lending rates across of economy, from mortgages to auto loans, remain high. And since federal student loan rates are set once a year, student borrowers won't see any potential effect from the Fed cutting rates until next year.
Even though federal loans are getting more expensive, they’re still recommended over private student loans. Federal loans have better borrower protections and more flexible repayment options. Plus, rates on federal loans will remain cheaper than private interest rates for many borrowers.
Rates on private loans currently start around 5% — but only borrowers with excellent credit (or a cosigner with excellent credit) qualify for those rates. Other borrowers have to pay rates in the double digits to borrow in the private market.
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FAQs
While rates have held in a relatively tight range in recent weeks, the cost of refinancing student loans has been rising over the past year as Federal Reserve policy makers increased the federal funds rate to try to slow inflation.
Why did my federal student loan increase? ›
Under all of the income-driven repayment (IDR) plans, your required monthly payment amount may increase or decrease if your income or family size changes from one year to the next or if you switch repayment plan. Loan Simulator can help you determine if your current plan is still the best option for you.
Why are my student loans gaining interest? ›
Interest begins accruing when you enter repayment after your six-month grace period after you leave school. If your loans are unsubsidized or you have PLUS loans, you're responsible for all the interest that accrues, even while you're (or the student is) in school.
What is the current federal student loan interest rate? ›
Federal student loans currently have interest rates ranging from 6.53 percent to 9.08 percent. Average private student loan interest rates, on the other hand, can range from around 4 percent to about 17 percent.
Can I ask Sallie Mae to lower my interest rate? ›
You can't change the type of interest rate (fixed or variable) that your private student loan after it's been finalized. But there are some things you can do to lower your total loan cost. Take advantage of discounts your lender offers, like Sallie Mae's discount for enrolling in auto debit.
Will student loan interest rates go down in 2025? ›
Interest rates on federal student loans recently jumped by one percentage point. Undergraduate loans now carry a rate of 6.53% for the 2024-2025 school year, up from 5.50% last school year. Graduate direct loans have a rate of 8.08%, up from 7.05%.
Why is my student loan not going down? ›
Your interest charges will be added to the amount you owe, causing your loan to grow over time. This can occur if you are in a deferment for an unsubsidized loan or if you have an income-based repayment (IBR) plan and your payments are not large enough to cover the monthly accruing interest.
Why is my Sallie Mae interest so high? ›
If you signed up for a Sallie Mae loan when you entered college, you might have a high interest rate because you were a college student with no credit history and no full-time income. You may be eligible for a lower interest rate if you have a stable job and a good credit score.
Why are people against student loan forgiveness? ›
Student loan forgiveness is regressive, inequitable, and it will not stimulate the economy. Instead, it will create an incentive for students to accumulate more debt and award as much as $192 billion to the top 20 percent of income earners.
Why is there so much interest on my student loan? ›
Your total loan is made up of everything you borrowed while studying plus interest. Interest is added from when the first amount is paid to you or your university until the loan is paid off or cancelled. The interest rate is linked to the rate of inflation as measured by the Retail Price Index (RPI).
You could make full payments, interest-only payments or small payments (say, $25 per month) to avoid interest accrual.
How bad is student loan interest? ›
Student loan interest rates FAQs
For federal student loans, rates in recent years have ranged from 2.75% to 5.50% for undergraduate borrowers. For the 2024-2025 school year, rates on undergraduate loans are set at 6.53%.
Why are federal student loan interest rates so high? ›
Economic Influences. Interest rates are higher compared to several years ago for nearly any type of loan, from auto loans to mortgages. Rising interest rates are directly correlated to Federal Reserve increases in the federal funds rate, which is the rate banks pay one another when they borrow money.
Can you negotiate interest rates on student loans? ›
While this strategy isn't guaranteed, one way to potentially lower your interest rate is to negotiate with your current lender. If you've improved your creditworthiness by increasing your income, paying down debt, or boosting your credit score, your lender might be willing to reduce your rate.
Do student loans go away after 7 years? ›
Student loans don't go away after seven years. There is no program for loan forgiveness or cancellation after seven years. But if you recently checked your credit report and wondered, “why did my student loans disappear?” The answer is that you have defaulted student loans.
Why are student loan payments so high? ›
The answer may lie within the fine print of your loan agreement … or it could be due to a rising interest rate environment. Depending on your repayment plan and the structure of your loan, your student loan payment can go up for various different reasons.
What is going on with my student loans? ›
Congress recently passed a law preventing further extensions of the payment pause. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October. We will notify borrowers well before payments restart.
Why is Sallie Mae's interest so high? ›
If you signed up for a Sallie Mae loan when you entered college, you might have a high interest rate because you were a college student with no credit history and no full-time income. You may be eligible for a lower interest rate if you have a stable job and a good credit score.
What is the average student loan rate in 2024? ›
Private student loan interest rates in September 2024
Today's average student loan rate for 5-year variable terms is 8.67%, while the average for 10-year fixed terms is 7.95%.
