When you’re taking out a student loan, the interest rate you pay can have a big impact on your financial future. The average borrower takes two decades to pay off their education debt, so getting even a slightly lower rate can add up to thousands of dollars in savings over the years.
If you opt for a federal student loan, you don’t have much say in your interest rate. Congress sets federal student loan interest rates annually, and they are fixed for the life of your loan. But if you’re pursuing a private student loan, you’ll find that rates vary by lender.
“To get the best possible rate on a student loan or student loan refinance, borrowers really need to pound the pavement,” says Michael Lux, attorney and founder of the Student Loan Sherpa, a website that provides guides on managing student debt. That means getting rates from different types of lenders, as well as other potential steps, such as improving your credit, rooting out rate discounts and applying with a cosigner.
Read on to learn about rates on different types of student loans and find all the ways you can get the lowest possible student loan interest rate.
What is the interest rate on federal student loans?
As a student, you have two main options for student loans for college: federal loans and private loans.
Federal Direct subsidized and unsubsidized loans come with fixed interest rates—currently 6.53% for undergraduates and 8.08% for graduate students for loans borrowed between July 1, 2024 and July 1, 2025. They also have an origination fee of 1.057% for loans disbursed on or after October 1, 2020.
Federal loans are eligible for a variety of borrower protections, including income-driven repayment, forbearance and forgiveness programs. For most borrowers, experts say, these should be your first choice. “Maxing out federal loans before private loans is a no-brainer,” says student loan lawyer Joshua Cohen.
The problem? Federal Direct subsidized and unsubsidized loans come with annual borrowing limits. Dependent undergraduate students can borrow between $5,500 and $7,500 annually, depending on their year in school. For graduate students, the annual limits for Direct unsubsidized loans are higher at $20,500.
Given the high costs of tuition these days, you may need additional funding to cover your expenses, even after maxing out your eligibility for federal student loans. Parents and graduate students can consider federal PLUS loans, which are available up to the school’s cost of attendance.
PLUS loans disbursed between July 1, 2024 and July 1, 2025, have an interest rate of 9.08%. Origination fees are on a slightly different schedule: PLUS loans disbursed between Oct. 1, 2020, and Oct. 1, 2024, have an origination fee of 4.228%.
What is the interest rate on private student loans?
Alternatively, students and parents could consider borrowing from a private lender, such as a bank, credit union or online loan company, which may offer better rates and no origination fee. Private lenders typically let you borrow as much as you need to cover your full cost of attendance.
When you take out a private loan, you usually get to choose between a fixed rate, which stays the same over the life of your loan, and a variable rate, which can start lower but may increase over time.
“Generally, fixed rates are preferable to variable rates, as they provide more certainty and less volatility in terms of monthly payments over time,” says Adam Minsky, another lawyer who specializes in student debt. However, variable rate loans can make sense if market rates are declining or if you’re planning to pay off your loan quickly, perhaps in five years or less.
According to the Education Data Initiative, interest rates on private student loans typically range from 4% to 15%. While rates were low during the Covid-19 pandemic, they’ve increased over the past couple of years because of rate increases from the Federal Reserve. The Federal Reserve may keep rates steady or start to cut them in 2024, which could cause private student loan rates to go down.
Unlike with federal loans, you’ll need to meet a lender’s criteria for credit and income to take out a private loan. Most undergraduate students—93% in the 2023-24 school year, according to data firm Enterval Analytics—apply with a cosigner, such as a parent, to meet these underwriting requirements.
Types of private student loans
Here are a few different types of private student loans you can borrow:
- Undergraduate student loan: Whether you’re pursuing your associate or bachelor’s degree, you can find a private student loan to cover your time at a community or four-year college.
- Graduate student loan: Lenders also offer graduate student loans, which may come with slightly higher interest rates than undergraduate loans. Some loans are designed specifically for medical school, law school, business school or other programs.
- Parent loan: If you’re the parent of a college student, you may find a private student loan to help pay for your child’s education. Note that the parent loan will be in your name, rather than your child’s.
- Nondegree seeking student loan: You can also borrow a loan for education that doesn’t lead to a formal degree, such as professional training or licensing programs. While federal loans are restricted to students enrolled in qualifying schools, some private loan companies are more flexible and will provide funding for a coding boot camp or other nontraditional program.
- International student loan: Some lenders fund private loans for international students studying in the U.S. Depending on the lender, you may need to apply with a cosigner who’s a U.S. citizen or permanent resident.
How to find the best rates on student loans
Private lenders use their own lending models to determine rates. But many start with a benchmark such as the Secured Overnight Financing Rate, or SOFR, a rate that banks charge one another for overnight lending, and add their own margin, or markup. The lenders then assign individualized rates to applicants based on their credit, income and other factors.
Here are some tips for finding a loan with a competitive interest rate.
Check your rates with at least three lenders
Compare offers from a minimum of three lenders, say experts, to see who has the lowest student loan rates. Three is just a starting point—if you don’t mind putting in the work, getting additional quotes can give you an even fuller picture of what’s out there, especially if you check loan offers from a mix of different kinds of institutions such as banks, credit unions and online lenders.
“Private student loan interest rates have been all over the place lately due to the broader economic conditions,” including recent Federal Reserve rate hikes, says Lux. In other words, a mediocre rate from one lender doesn’t mean you get an attractive one from the next one.
You might start with your bank or credit union, since they might offer an interest rate discount to current customers. It’s worth looking into online lenders too, who may be able to offer better rates and faster funding times than bricks-and-mortar institutions.
Many online lenders let you prequalify for a loan on their websites, meaning you can check your rates with no obligation or impact on your credit score. While your preapproved student loan interest rates aren’t guaranteed, they still give you a glimpse into what each lender can offer.
Improve your credit score
Lenders assign the best rates on student loans to borrowers with the strongest credit scores. With the FICO scoring model, a good rate starts at 670 and a very good score starts at 740.
If you don’t have immediate need for a student loan—if, say, you’re a parent whose child will be starting college in a year or two or a first-year graduate student who can build their credit before their second year—take steps to improve your credit score before you apply. You usually need to be over 18 to have a credit score. Pay down debt balances, make on-time payments on your loans and dispute any errors on your credit report.
One of the fastest ways to improve your credit is to lower your credit utilization ratio, or the amount of credit you’re using compared with what’s available to you. Credit card companies report your balance to the credit bureaus monthly, so if you can pay down your revolving balances before they’re reported, you should see an improvement in your score.
The amount of time it takes to improve your score will vary by individual. If your score was dinged by closing a credit card account (or applying for a new one), raising your score back to where it started may only take a couple of months. If your score was damaged because you defaulted on a loan, the process can take longer. According to Experian, late or missed payments can stay on your credit report for seven years. But with careful money management, many consumers can see improvement in their credit scores in less than a year.
Apply with a cosigner
Applying with a creditworthy cosigner, such as a parent, can help you get a better interest rate. If your cosigner has strong credit and a steady income, a lender will see the loan as less risky and offer better rates and terms as a result.
If you’re an undergraduate student, chances are you have to apply with a cosigner to qualify for a private loan at all. Asking someone to cosign debt is a big request, though, since your cosigner becomes equally responsible for the loan.
Their debt-to-income ratio will increase, potentially making it more expensive for them to get another loan, such as a mortgage. Plus, your co-signer’s credit could be damaged if you miss payments or default. Your cosigner will also be expected to make payments if you fall behind.
Some private lenders allow cosigner release after a period of on-time repayment, a feature worth considering as you compare your options. If you qualify for cosigner release, your cosigner will be off the hook for your debt, and it will be in your name alone.
Opt for a shorter loan term
When you borrow a private student loan, you can often choose terms of five, 10, 15 or 20 years. Most lenders assign lower interest rates to loans with shorter terms. If you can afford the monthly payments, consider opting for a shorter loan term to get a better rate.
Look for interest rate discounts
Some lenders award interest rate discounts if you meet certain criteria. Banks, for instance, may provide a relationship discount if you hold an active checking account. If you’re already a member of a bank or credit union, ask your institution if it provides any rate cuts to current customers.
Sign up for autopay
Signing up for automatic payments on your student loans often results in a rate cut of 0.25 percentage points. This autopay rate discount is available on federal student loans and most private student loans. Not only can setting up autopay save you money on interest, but it can also help ensure you don’t miss payments.
Don’t forget about fees
Don’t forget to take any fees into account as you shop for a loan. Some private lenders charge an administrative, disbursem*nt or origination fee, which may fall between 1% and 6% of your loan amount. Even if one lender offers a better rate, this fee could offset your savings.
When comparing loans, make sure to look at annual percentage rate, or APR, rather than interest rate alone. APR takes both interest and fees into account, allowing you to compare loans on an apples-to-apples basis.
Using a student loan repayment calculator can also help you compare your loan costs. By entering your loan amount and APR, you can see your monthly payment and long-term interest charges. Some calculators also show your loan’s amortization schedule, or how your monthly payments will be applied to interest and your principal balance.
The Education Department’s Loan Simulator tool can also help you compare the costs of federal student loans on various repayment plans.
How to refinance student loans
If you borrow a student loan with a high interest rate, you’re not saddled with that rate forever. Instead, you can refinance your student loans for a new loan with a better rate. Refinancing involves exchanging one or more of your current loans for a new loan.
Before you refinance federal loans, keep in mind that doing so means forfeiting access to federal repayment plans and forgiveness programs. Since refinancing would turn your federal loans private, they would no longer be eligible for income-driven repayment, federal forbearance or Public Service Loan Forgiveness.
If you don’t need federal protections, however—or already have private loans—refinancing could theoretically lead to a better rate. Plus, you can choose new repayment terms, perhaps opting for a shorter term to get out of debt faster or a longer term to reduce your monthly payments.
Let’s say, for example, that you borrowed $30,000 at a 7% rate. According to the Education Data Initiative, the average student loan refinance rate falls between 4.4% and 15.3%. If you’ve built your credit into the exceptional range (FICO score 800 or higher) and can reduce your rate to 4.4% through refinancing, you could save $4,663 in interest over 10 years.
Some lenders offer even better rates for refinancing student loans than they do for borrowing in-school loans. The advice for finding a good rate remains the same, though—check your rates with multiple lenders to find the best deal.
As with shopping for in-school loans, take advantage of online prequalification whenever possible, and keep an eye out for interest rate discounts. As with an in-school loan, applying with a cosigner may help you score a better rate—but, you’ll need to be comfortable sharing debt.
In the end, private lenders assign the best interest rates to borrowers with the best credit. If you can head into the application process with good credit—or apply with a creditworthy cosigner—you’ll be in the strongest position to score a good interest rate on an in-school or refinanced student loan.
Student loan FAQ
What are the current student loan interest rates?
Here are the current interest rates and fees on federal student loans:
| Interest rates | Loan fees | |
| Direct subsidized and unsubsidized loans for undergraduates | 6.53% | 1.057% |
| Direct unsubsidized loans for graduate students | 8.08% | 1.057% |
| Grad and Parent Plus loans | 9.08% | 4.228% |
Private student loan rates vary by lender, but may range from around 4% to 15%.
How do you qualify for a student loan?
Anyone who’s eligible for federal financial aid can qualify for a federal student loan by submitting the Free Application for Federal Student Aid, or Fafsa. As for private student loans, you need to meet a lender’s requirements for credit, income and debt-to-income ratio to qualify. Most students apply with a cosigner, such as a parent, to meet this criteria.
Can you get a student loan with bad credit?
You can qualify for federal student loans with bad credit. Direct subsidized and unsubsidized loans don’t have a credit requirement at all, and Plus loans simply require that you don’t have adverse credit, such as a bankruptcy, in your past.
It can be trickier to qualify for a private student loan with bad credit, but shopping around can help, as some lenders have more flexible credit requirements than others. You could also boost your chances of approval by applying with a creditworthy cosigner.
Do you need a cosigner for a private student loan?
You may need a cosigner to qualify for a private student loan if you can’t meet a lender’s requirements for credit and income on your own. However, there are a handful of lenders that offer no-cosigner loans and base approval on alternative factors, such as your GPA, program and major. A no-cosigner student loan may have higher interest rates and fees than a cosigned student loan.
Should I refinance my student loans?
Refinancing your student loans could be beneficial if you can qualify for a better interest rate than you have now. It can also help simplify repayment by combining multiple loans into one. If you originally borrowed with a cosigner, you may be able to release that cosigner by refinancing on your own. You may also appreciate the option of choosing new repayment terms or switching from a variable interest rate to a fixed one.
However, refinancing may not make sense if you can’t get a better rate than you have currently. Plus, refinancing federal student loans means losing eligibility for federal repayment plans, forgiveness programs and other protections. Don’t refinance federal student loans with a private lender if you’re using income-driven repayment, working toward Public Service Loan Forgiveness or relying on another federal program.
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More on student loans
- What Is Fafsa?
- What Are Private Student Loans? And How to Use Them to Pay for School
- Everything You Need to Know About Income-Driven Repayment
Meet the contributor
Rebecca Safier
Rebecca Safier is a contributor to Buy Side from WSJ who focuses on helping people make informed decisions about their money, whether they’re planning for college, improving their credit or paying off debt.
