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Current Student Loan Rates

Written by Mark Kantrowitz | August 18, 2023

Whether you’re looking to borrow a new student loan or you’re paying down an existing loan, it’s important to understand the interest rate. A student loan interest rate determines the total amount that a borrower pays for a student loan. Generally, the higher the interest rate, the more expensive the loan.

Student loan interest rates vary, depending on whether you borrow a federal student loan or a private student loan. And private student loan interest rates also vary by lender.

Current Federal Student Loan Rates

Federal student loan rates reset on July 1st, and apply to all new loans disbursed between July 1 and June 30 of the next year. New federal interest rates are introduced based on the high yield of the most recent 10-year Treasury Note auction, plus a statutory add-on percentage.

In the latest 10-year Treasury Note auction on May 10, 2023, there was a high yield of 3.448%. As a result, federal rates increased for the 2023-2024 academic year are:

  • 5.50% for undergraduate Federal Direct Stafford loans, up from 4.99%
  • 7.05% for graduate Federal Direct Stafford loans, up from 6.54%
  • 8.05% for Federal Direct PLUS loans (including Grad PLUS and Parent PLUS loans), up from 7.54%

The rate increase does not affect existing federal loans. Only new loans disbursed between July 1, 2023 and June 30, 2024 will have the current interest rates. 

The interest rate on your federal student loan is fixed, which means it will remain the same until you’ve finished repaying the loan in full, or you choose to refinance or consolidate your loan

Current Interest Rates for Private Student Loans

Private student loans offer fixed interest rates and variable interest rates. Variable loans have a fluctuating rate which can go up or down based on market conditions. 

The government does not set the interest rate on private student loans. Instead, private lenders set their rates, which can vary depending on the loan you take out. That’s why it’s important to compare private lenders before you borrow a private student loan.

Interest rates on private student loans are all credit underwritten. That means borrowers will need to have a good credit score to qualify for the best interest rates. Unfortunately, many students have very little credit history, which means they could end up paying more in interest. Private student loans may also require a cosigner if you don’t have steady income and solid credit.

Want to see how much you will pay for a student loan next year? Use our student loan calculator.

How Student Loan Rates Work

Student loan rates are the interest rates a borrower pays on an education loan. The higher your interest rate is, the more you will pay for your loans.

Interest is a percentage of the amount of money that you borrow. This amount is your “principal balance”. Your total payment, therefore, includes principal and interest.

The amount of interest that you need to pay on your student loan and when that sum needs to be repaid will depend on the type of student loan you’ve taken out and the loan’s terms.

Most student loans are daily interest loans. If you take out a daily interest student loan, your lender or loan servicer will calculate interest daily. That interest accumulates, increasing your payment.

How interest rates affect repayment

Student loan rates determine the total amount of money a borrower must repay over the course of their loan term. 

For example, let’s say you were to take out a $50,000 student loan with an annual interest rate of 5%. That would mean in addition to the $50,000 you’ve got to borrow for your education, you’ll need to repay an extra $2,500 worth of interest at the end of each year. However, most student loan interest compounds, meaning, interest is charged on interest. That means your interest payment would be even more than $2,500.

By contrast, if your lender implemented a 10% annual loan rate on that same borrowing amount, you’d have to pay at least $5,000 in interest each year (more if compounding). 

Subsidized vs. unsubsidized loans

The Department of Education offers subsidized and unsubsidized loans for undergraduate students. Subsidized student loans are available to students based on financial need.

With subsidized loans, the government pays any accumulated interest on your behalf while you’re still completing your education. In other words, you won’t owe any interest on your student loan until after you graduate.

When a loan is unsubsidized, you as the borrower may have to start repaying interest on your principal amount immediately. However, if your unsubsidized loan qualifies for an in-school deferment you can delay your interest payments (although the interest will continue to accrue over the course of the deferment period).

How Long Will it Take to Pay Off My Student Loan?

The standard repayment period for a federal student loan is 120 months (or 10 years). Repayment terms for a private student loan vary, depending on the lender. But, private lenders generally do not offer the same flexibility and repayment options that are available with federal student loans.

For example, borrowers with more than $30,000 in federal student loans may opt for an extended repayment period of up to 25 years. Federal borrowers may also qualify for an income-driven repayment plan, which could extend the loan term to 25 years.

Interest rates don’t affect the length of your loan, as the term is based on the type of repayment plan you have, such as a standard repayment plan, an extended repayment plan or income-driven repayment plans.

Can I Lower My Interest Rate?

If you’ve borrowed a fixed-rate student loan, your interest rate generally cannot be lowered without refinancing. However, many student loan servicers offer an interest rate reduction for borrowers who enroll in an auto debit scheme. 

If you have a variable-rate private student loan, your lender may lower your rate due to market activity. But, variable rates work both ways, and changes in market activity could also cause your student loan interest rate to go up.

Student Loan Refinancing

You can refinance your student loan to take advantage of lower interest rates, but there are several important rules to be aware of.

First, borrowers cannot refinance existing federal student loans into new federal student loans. 

But that doesn’t mean you can’t refinance a federal student loan. 

Some borrowers can refinance their federal student loan into a private student loan. If a private lender can offer lower interest rates for a refinanced loan than a borrower currently enjoys via their federal loan, the borrower could end up saving money over the course of their loan.

That being said, borrowers who choose to refinance a federal student loan into a private student loan will also stand to lose many of the superior benefits of federal student loans

These benefits can include payment pauses, as we saw during the COVID-19 pandemic, and interest waiver, student debt forgiveness options, longer deferments and forbearances, getting to use an income-driven repayment plan, and death and disability charges.

When refinancing a student loan to benefit from current student loan rates, you’ll also need to consider which type of interest rate you’re being offered. 

For example, if you’re comparing a fixed federal loan rate to a lower private variable rate, you need to remember that the variable rate you’re looking at may increase in the future. Fixed federal loan rates don’t go up no matter what’s happening in financial markets.

If you have an existing private student loan, it generally makes sense to refinance if a lower rate is available. Private loans are not eligible for the payment pause and interest waiver or any other federal benefits.

Is now a good time to refinance student loans?

Whether it’s a good time to refinance student loans depends on the type of loan you have and the interest rate you are paying.

Private student loan rates are generally decided by lenders of loan servicers based on benchmark indices. Unlike federal rates, private loan rates vary between lenders. 

Keep in mind if you refinance a federal student loan into a private student loan you will lose all of the benefits of a federal loan. These benefits include income-driven repayment plan, student debt forgiveness, and longer deferments and forbearances. 

The best way to decide when is the right time to refinance your student loan is by consulting our rating of the top 10 best student loan refinance companies.

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About the author

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions. Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association. Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation. Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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