Student loans are a common tool for financing a college education, and the federal government is the leading source of loans. In fact, federal student loans make up about 92% of the total education financing market.
Federal law sets the interest rate on federal student loans, and the rates are updated each year. Historically, federal student loans had relatively low rates — rates were under 4% as recently as 2023 — but with changing economic conditions, rates have fluctuated.
Based on the current economy, experts predict that federal loan interest rates will be slightly lower than they were last year, but the change is small; they’re still much higher than usual.
Here’s what you should know about the new rates, and how they may affect you as a borrower.
New Federal Student Loan Interest Rates
Typically, the new rates are announced in mid-May. The official announcement from the U.S. Department of Education hasn’t come out yet. However, student loan experts and economists have predicted that the new rates will be slightly lower than they were for the 2024-2025 academic year.
For Direct Subsidized and Direct Unsubsidized Loans for undergraduate borrowers, the rates will decrease from 6.53% to 6.39%. For Direct Unsubsidized loans for graduate or professional borrowers, the rates will decrease from 8.08% to 7.94%. And, for Parent and Grad PLUS Loans — who are taken out by parents and graduate or professional students — the rates will decrease from 9.08% to 8.94%.
| Direct Subsidized | Direct Unsubsidized | Direct Unsubsidized | Parent and Grad PLUS | |
| Borrower Type | Undergraduate | Undergraduate | Graduate | Parents and graduate students |
| Rate for Loans Disbursed July 1, 2025, through June 30, 2026 | 6.39% | 6.39% | 7.94% | 8.94% |
| Rate for Loans Disbursed July 1, 2024, through June 30, 2025 | 6.53% | 6.53% | 8.08% | 9.08 |
| Rate for Loans Disbursed July 1, 2023, through June 30, 2024 | 5.50% | 5.50% | 7.05% | 8.08% |
| Rate for Loans Disbursed July 1, 2022, through June 30, 2023 | 4.99% | 4.99% | 7.05% | |
| Rate for Loans Disbursed July 1, 2021, through June 30, 2022 | 3.73% | 3.73% | 5.28% | 6.28% |
| Rate for Loans Disbursed July 1, 2020, through June 30, 2021 | 2.75% | 2.75% | 4.30% | 5.30% |
| Average Rate on Loans Issued between July 1, 2020, and June 30, 2026 | 4.98% | 4.98% | 6.53% | 7.53% |
Even with the rate decrease, federal student loan interest rates are surprisingly high right now. Historically, federal loans have relatively low rates; just a few years ago, the rate on undergraduate student loans was just 2.75%, so today’s rates are significantly higher.
What the New Rates Mean for Borrowers
After several steep rate increases over the past few years, a rate reduction is a welcome change for borrowers. However, the change only affects new student loans; the new rates only apply to loans taken out between July 1, 2025, and June 30, 2026.
If you have existing loans, the interest rates on your loans are unchanged. Federal loan rates are set for the life of the loan, so the rate only affects new loans. That’s why if you take out federal loans over several years — for example, taking out a new Direct Unsubsidized loan for every year you’re in college — you could have loans with different rates.
The rate on federal loans has a major impact on your repayment, affecting how much interest accrues and your total repayment cost.
For example, say you took out $5,000 in unsubsidized loans at 2.75%. With a 10-year repayment term, your monthly payment amount would be $47.71, and you’d repay a total of $5,724.66 over the life of your loan.
If you took out that same amount at the new rate of 6.39%, your monthly payment would be $56.49, and you’d repay a total of $6,779.35. With the higher rate, you’d pay over $1,000 more in interest.
| Unsubsidized Loan at 2.75% | Unsubsidized Loan at 6.39% | |
| Principal | $5,000 | $5,000 |
| Loan Term | 120 months | 120 months |
| Monthly Payment | $47.71 | $56.49 |
| Total Interest | $724.66 | $1,779.35 |
| Total Repaid | $5,724.66 | $6,779.35 |
Shopping for Student Loans
Federal loans are smart lending options because they often have lower rates and more generous repayment terms than other financing options. However, federal loan rates are higher than the 10-year average, so it’s wise to explore other tools, too.
Depending on your credit — and whether you have a co-signer — you may qualify for lower rates with private student loans. Current private loan rates start under 4.00%, so you could potentially save money.
