Best Student Loan Interest Rates
Student loans can help to bridge financial gaps left by scholarships, grants, and other kinds of aid, but they are not free. Interest rates are charged on Student loans in addition to the principal balance (the amount borrowed). These interest rates decide how much money you will eventually owe and how much you will pay each month. Compare interest rates before taking out a Loan to ensure your debt is affordable after graduation.
Undergraduate federal student loans now have an interest rate of 5.50 percent for the 2023-24 school year, while graduate student interest rates for unsubsidized loans or Direct PLUS loans are 7.05 percent or 8.05 percent, respectively. Private Student Loan interest rates range from 4.50 percent to 16.99 percent, depending mostly on your credit score.
Current student loan interest rates
Approximately 92% of student loan debt is federal, with interest rates ranging from 5.50% to 8.05%. On the other hand, average private student loan interest rates might range between 4.50 percent and over 17 percent.
While federal student loan rates are the same for all borrowers, private student loan rates vary depending on the lender, interest rate type (fixed or variable), and the borrower’s credit score.
| Loan Types | Borrower | Fixed Interest Rate Loan | N Fee |
|---|---|---|---|
| Direct Subsidized Loans and Direct Unsubsidized Loans | Undergraduate students | 5.50% | 1.057% for loans first disbursed on or after Oct. 1, 2020, and before Oct. 1, 2024 |
| Direct Unsubsidized Loans | Graduate or professional students | 7.05% | 1.057% for loans first disbursed on or after Oct. 1, 2020, and before Oct. 1, 2024 |
| Direct PLUS Loans | Parents and graduate or professional students | 8.05% | 4.228% for loans first disbursed on or after Oct. 1, 2020, and before Oct. 1, 2024 |
How are student loan interest rates set?
The interest rates on federal student loans and private student loans are very similar. When federal student loan rates fall, private student loan rates are expected to follow suit. This is because both forms of loans tend to reflect broader economic market developments.
Federal student loan interest rates
Each spring, Congress determines federal student loan interest rates based on the high yield of the previous 10-year Treasury note auction in May. New rates apply to student loans disbursed between July 1 and June 30 of the following year. Federal loans are fixed, which means that the interest rate will not fluctuate throughout the loan’s term. Your credit score or financial background does not decide the interest rate you pay on a federal student loan.
Interest rates vary between subsidized and unsubsidized loans. For federally subsidized loans, the government covers your interest while you are enrolled at least half-time, throughout your grace period, and while you are in deferment. The amount you’ll owe once you begin paying only includes your original principal debt, loan fees, and interest earned in the future.
Interest charges on federal unsubsidized loans begin immediately after the funds are disbursed. If you opt not to make loan payments until after graduation or during your six-month grace period, the accumulated student loan interest will be applied to your principal sum when the loan enters repayment.
Private student loan interest rates
Private student loans are available through banks, credit unions, and online lenders. Interest rates vary by lender. Many private student loan lenders provide both fixed and variable rates. If you select the variable rate option, your interest rate will fluctuate based on market conditions.
Most student loan providers base their rate ranges on the Libor or the Secured Overnight Financing Rate indices.
While rates are connected to this standard, private lenders will often consider your or your co-signer’s credit score, income, and financial history when determining your interest rate. Generally, the better your financial situation and credit score, the cheaper your interest rates will be.
As part of the prequalification process, many lenders may conduct a soft credit pull to obtain this information. This form of credit check does not affect your credit and will show you potential terms and interest rates. However, if you decide to proceed with the application process, the lender will need to conduct a hard credit investigation, which may lower your credit score a few points, to approve you for the loan.
To make loans more accessible, some lenders consider your employment and academic history, as well as prospective future earnings.
College Enrollment Trends
Fewer people are enrolling in postsecondary education.
Colleges and universities reopened their classrooms and dorm rooms in the fall of 2020 after the pandemic forced them to go remote. However, within weeks, several schools were forced to reschedule sports and other activities due to widespread quarantines, forcing them to return to virtual courses.
As the pandemic continued, many assumed that community schools would experience more enrollment, but data revealed that fall enrollment was up for several large public universities, while attendance at community colleges was down as much as 30% at some institutions.
By the spring of 2022, enrollment had deteriorated further, with overall postsecondary enrollment falling to about 16.2 million, a 4.1% drop in a single year. This follows a 3.5% dip the year before.
The majority of the decline was in undergraduate enrollment, which fell 4.7% from the previous year. The number of undergraduate students enrolled decreased by 9.4% compared to pre-pandemic levels.
Enrollment began to stabilize in autumn 2022, but combined undergraduate and graduate enrollment remained 5.8% lower than in 2019. By the spring of 2023, enrollment had dropped another 0.5%.
Student Debt Continues to Rise
Following the 2007-2008 Great Recession, state higher education funding plummeted by a whopping 25%. Students paid for 47% of higher education revenues in 2012, up from 36% in 2008. This resulted in student loan debt surpassing $1.6 trillion.
The debt may worsen if the education system is forced to suffer more budget cuts, and enrollments struggle to recover after the pandemic.
While student debt is a persistent problem, some borrowers may be able to find relief through loan forgiveness programs.
Borrowers working toward forgiveness under the Public Service Loan Forgiveness (PSLF) program and on an income-driven repayment (IDR) plan may have their outstanding sum forgiven after making 120 qualifying payments.
How will student loan rates change in 2023?
The federal funds rate jumped to 5.25-5.5 percent in September 2023 and has been progressively rising over the past two years. This means that interest rates on both federal and private student loans may rise, increasing the cost of your debt.
The Biden presidency and student loans
While the president has little control over student loan interest rates, President Joe Biden has been looking for alternative methods to make college more accessible and lower the student debt burden. In August 2022, he revealed plans to eliminate up to $20,000 in federal student loan debt for millions of qualifying students.
Despite the Supreme Court’s rejection of this plan, the Biden administration continues to work to make loan forgiveness more accessible to borrowers. For example, in October, the government announced modifications to the income-driven repayment and Public Service Loan Forgiveness programs, making around 125,000 borrowers eligible for a total of $9 billion in debt relief.
How to calculate student loan interest
Calculating your student loan interest might help you set a monthly budget. To calculate how much interest you pay each month, follow the steps below:
1. Get your daily interest rate. Divide the annual interest rate by 365.
2. Determine the daily interest accrual charge. Multiply your daily interest rate by the remaining principal balance.
3. Calculate the monthly payment. Multiply the daily interest accrual by the number of days in your billing period.
Let’s imagine you pay 5% interest on your $10,000 loan per month. Here is what those steps look like:
- 0.05 (annual interest rate) / 365 = 0.000137
- $10,000 (principal balance) x 0.000137 = 1.37
- 1.37 x 30 (number of days in a billing cycle) = $41.10
In this situation, you will pay $41.10 in interest for the first month. As you pay down the main debt, a smaller portion of your monthly payment will go toward interest.
Some private loans have a variable rate, which means that the daily interest rate may fluctuate throughout the loan’s life. You can also use a student loan calculator to determine your monthly interest rate.
The difference between subsidized and unsubsidized student loans
Federal student loans may be subsidized or unsubsidized. The main difference between the two alternatives is how you will pay your interest and total debt after graduation. Unsubsidized loans begin charging interest immediately after they are disbursed, but subsidized loans do not charge interest until you begin repayment.
Direct Unsubsidized Loans
- Who pays interest costs? The borrower.
- What’s the lifetime maximum limit? $31,000 for dependent undergraduate students, $57,500 for independent undergraduate students, and $138,500 for the majority of graduate or professional students.
- Do you need to demonstrate financial need? No.
- Who can borrow? Students pursuing undergraduate, graduate, or professional degrees.
- Are there extra costs involved? 1.057 percent fee for loans delivered on or after October 1, 2020, but before October 1, 2024.
Direct Subsidized Loans
- Who pays interest costs? The U.S. Department of Education pays interest while the student is enrolled at least half-time, during the six-month postgraduation grace period, and while deferred. The borrower makes regular repayments and pays interest.
- What’s the lifetime maximum limit? $23,000.
- Do you need to demonstrate financial need? Yes.
- Who can borrow? Undergraduate students.
- Are there extra costs involved? 1.057 percent fee for loans delivered on or after October 1, 2020, but before October 1, 2024.
The difference between fixed and variable rates
Fixed interest rates are interest rates that do not change throughout your loan, so you’ll know how much it will cost to borrow and what your monthly payments will be. All federal loans have fixed rates.
Variable interest rates fluctuate in response to market conditions, so your monthly payment may rise or fall regularly. These modifications usually occur on a monthly, quarterly, or annual basis. Private student loans come with either fixed or variable interest rates.
Is it better to choose a fixed or variable-rate student loan?
Although fixed-rate student loans have higher starting rates than variable-rate loans, your payments will stay the same for the duration of the loan. Fixed interest rates also shield you from a rising rate environment.
Variable-rate loans, on the other hand, typically offer lower starting rates, and depending on market conditions, you may end up paying more or less over time. But it is a major “if.”
Finally, whether you prefer a fixed or variable-rate loan will be determined by your comfort level. If you like predictability, a fixed rate is the way to go; but, if you want to take chances, a variable rate may be a better option.
How can I reduce my student loan interest rate?
If you want to lower your student loan interest rate, you have several options:
- Improve your credit score before applying: If you ask for a loan from a private lender, you will most likely have your credit checked. The better your credit score, the lower your interest rate will be. Before applying, review your credit reports for inaccuracies and refrain from applying for other types of credit.
- Apply with a co-signer: Many student loan debtors have limited credit history. If this is your scenario, you should consider adding a co-signer to your loan. Having a co-signer with good credit will boost your creditworthiness and potentially help you receive reduced rates. Some lenders need a cosigner, particularly for student borrowers.
- Choose a variable rate: It’s a gamble, but selecting a variable rate over a fixed rate may lead your interest rate to fall during economic downturns. However, keep in mind that you risk seeing your interest rates rise.
- Refinance old loans: If you took out a student loan at a high-interest rate, you may be able to refinance for a reduced rate. This is especially true if your credit score has improved while applying. Remember that if you refinance a federal student loan, you will forfeit benefits such as coronavirus forbearance and income-based repayment programs.
How to pay off student loan interest
Student loan interest can drastically increase the ultimate cost of your debt, frequently by thousands of dollars. To minimize your interest payments, you can:
- Opt for interest-only payments while in school. Though you are not compelled to make payments while attending school, many lenders provide the option of making interest-only installments. This inhibits interest accrual. Some also allow for minor payments against the principle.
- Make biweekly payments. If you can afford it, consider making half-payments on your loans every two weeks rather than one full payment every month. This accelerates debt repayment and prioritizes principal payments over interest.
- Put any extra funds toward your student loans. If you receive a tax refund or another one-time payment, submit it to your lender and specify that you want it applied to your main balance. This is an effective technique to reduce your loan amount and the total amount of time you spend repaying your loans, lowering the amount of interest you pay overall.
Next steps
If you’re thinking about taking out a student loan, the easiest approach to get a good interest rate is to shop around with several lenders. It is normally recommended to begin your search with federal student loans, but private student loans can be a useful addition. While you will be charged higher interest rates if your credit score needs improvement, some lenders specialize in borrowers with terrible credit.
The Bankrate guide to choosing the best student loans
When searching for a student loan, seek for a competitive interest rate, flexible repayment periods that match your needs, extensive hardship choices, and low fees. The lender information shown here is valid as of December 7, 2023. Check the lender’s websites for changes.
The top lenders listed below were chosen based on several criteria, including APR, loan amounts, fees, credit standards, and broad availability. More information can be found in our methodology section at the bottom of this page. You can also find information about when to use government or private loans, how to locate a competitive interest rate, and how to compare lenders to get the best deal for your situation. You can also prequalify with the private lenders listed on this page.
What are current student loan interest rates?
Current interest rates on private student loans vary depending on where the loan originated, the type of interest rate, and the borrower’s creditworthiness. Aside from Perkins loans, all federal student loans disbursed after July 1, 2006, have fixed rates. The interest rates stated for these loans apply to loans disbursed between July 1, 2023, and June 30, 2024.
| Loan Types Fixed | D APR |
|---|---|
| Direct Subsidized and Unsubsidized Loans (undergraduate borrowers) | 5.50% |
| Direct Unsubsidized Loans (graduate and professional borrowers) | 7.05% |
| Direct PLUS Loans (parents and graduate and professional borrowers) | 8.05% |
What are the interest rates for federal student loans?
Annually, federal student loan rates change. The rate you pay is determined by when you took out the loan.
| Loan First Disbursed | Undergraduate Direct Subsidized Loan | Undergraduate Direct Subsidized Loan | Undergraduate Direct Or Professional Subsidized Loan | Direct Plus Loan |
|---|---|---|---|---|
| July 1, 2023 – June 30, 2024 | 5.50% | 5.50% | 7.05% | 8.05% |
| July 1, 2022 – June 30, 2023 | 4.99% | 4.99% | 6.54% | 7.54% |
| July 1, 2021 – June 30, 2022 | 3.73% | 3.73% | 5.28% | 6.28% |
| July 1, 2020 – June 30, 2021 | 2.75% | 2.75% | 4.30% | 5.30% |
| July 1, 2019 – June 30, 2020 | 4.53% | 4.53% | 6.08% | 7.08% |
| July 1, 2018 – June 30, 2019 | 5.05% | 5.05% | 6.60% | 7.60% |
| July 1, 2017 – June 30, 2018 | 4.45% | 4.45% | 6.00% | 7.00% |
| July 1, 2016 – June 30, 2017 | 3.76% | 3.76% | 5.31% | 6.31% |
| July 1, 2015 – June 30, 2016 | 4.29% | 4.29% | 5.84% | 6.84% |
Compare student loan interest rates in February 2024
| Lender | Best For | Variable APR | Fixed APR | Loan Term | Loan a Mountain | N. Credit Score |
|---|---|---|---|---|---|---|
| Ascent | Loans without a co-signer | 6.17%-16.11% (with autopay) | 4.13%-15.46% (with autopay) | 5-20 years | $2,001-$400,000 | Not specified |
| Citizens Bank | Multiyear approval | 6.38%-14.28% (with autopay) | 4.48%-13.29% (with autopay) | 5-15 years | $1,000-$350,000 depending on programs | t specified |
| College Ave | Quick application process | 5.59%-16.65% (with Autopay) | 4.11%-15.44% (with Autopay) | 5-15 years | $1,000-100% total cost of attendance (maximum $150,000 for some degrees) | Not specified |
| Earnest | Flexible repayment terms | 5.62%-16.20% (with autopay) | 4.42%-15.90% (with autopay) | 5-15 years | $1,000-100% total cost of attendance | 650 |
| Sallie Mae | Part-time students | 6.37%-16.70% (with autopay) | 4.50%-15.49% (with autopay) | 10-15 years | $1,000-100% total cost of attendance not | t specified |
| SoFi | Loans without fees | 5.99%-14.70% (with autopay) | 4.44%-14.70% (with autopay) | 5-15 years | $1,000-100% total cost of attendance | 640 |
Types of student loans
Students have numerous alternatives for student loans based on their degree program:
- Federal undergraduate loans: Federal student loans are available to both US citizens and qualifying non-citizens, regardless of credit or co-signer status. Undergraduates may be eligible for either Direct Unsubsidized Loans or Direct Subsidized Loans, the latter of which is only available to students in need.
- Federal graduate loans: Graduate students may apply for federal Direct Unsubsidized Loans or Direct PLUS Loans. Unsubsidized loans are cheaper, however, PLUS Loans have larger loan amounts.
- Private undergraduate loans: Borrowers who have maxed out their federal student loans may seek private loans. International students who do not qualify for federal aid may rely solely on these loans to study in the United States.
- Private graduate loans: Private lenders provide loans for graduate studies in several fields, such as law, business, and medicine.
- Student loan refinancing: If you wish to adjust your payment period or interest rate on an existing student loan, refinancing is an option. Refinancing involves repaying your existing loans in return for a new loan.
Federal vs. private student loans
The United States Department of Education offers federal student loans, whilst banks, credit unions, and private lenders offer private student loans. It is nearly always better to begin your search for federal student loans.
The rates and eligibility requirements for federal and private loans differ the most. Private lenders base their rates on your credit score, and a low credit score results in higher rates. Federal student loans, on the other hand, offer the same rate to all borrowers regardless of loan type. The typical interest rate on a private student loan is between 4 and 15 percent, whereas federal loans charge 4.99 percent, 6.54 percent, or 7.54 percent, depending on the loan type.
Borrowing constraints on federal loans mean that borrowers frequently turn to private lenders to cover their remaining educational expenses. While private loans can often cover the full cost of attendance, they do not provide as many repayment options.
Most private student loans also provide few chances for loan forgiveness. Federal student loan forgiveness alternatives do not extend to private debt.
| Federal Student Loans | Private Student Loans | |
|---|---|---|
| Interest rates | 5.50% to 8.05% for 2023-24 | 4.39% to 16.99% fixed, 4.98% to 16.99% variable |
| Fees | 1.057% to 4.228% origination fee varies | s by lender |
| Borrowing limits | Dependent undergraduates pay $31,000, independent undergraduates pay $57,500, and graduates pay the full cost of attendance. | Many lenders charge 100% of the whole cost of attendance. |
| Qualification requirements must | t be a US citizen or eligible noncitizen and enrolled at least half-time. | Varies by the lender; frequently requires solid credit and continuous income. |
| Benefits | Income-driven repayment options, strong deferment and forbearance, and no minimum credit score. | Low-interest rates for good-credit borrowers, often zero fees, and lender-specific benefits |
| Drawbacks | Potentially higher interest rates than private loans offer for applicants with strong credit, loan amount limits for undergraduate borrowers. | Credit checks are needed, high rate ceilings, and fewer borrower protections. |
Student loan interest information
You will have to repay more than just the amount you borrowed with a student loan. Interest charges can dramatically increase the total cost of your loan.
How student loan interest works
When you apply for a student loan, you will receive an interest rate. This interest rate is an additional percentage of your loan amount that you must pay every month.
With federal loans, this rate is fixed for all borrowers and is set by the federal government each year. Your credit score, income, and other factors all influence the interest rate on private loans. Students with strong financial health and great credit ratings receive the most economical private student loans.
Borrowers can commonly select between fixed and variable interest rates. Fixed interest rates are constant throughout the loan’s term, whereas variable rates alter in response to market developments. Federal student loans are always fixed, although private student loans can be both fixed and variable.
How student loan interest is calculated
While exploring interest rates, you can calculate your student loan interest to see how much you’ll pay each month. This is how you do it:
- Find your daily interest rate: Divide your yearly interest rate by the number of days in the year (365).
- Determine your daily interest accrual charge: Multiply your daily interest rate by the principal balance.
- Calculate your monthly payment: Multiply your daily interest by the number of days in your billing period.
If you have $10,000 in student loans, a 6% interest rate, and a 30-day billing cycle, a little more than $49 of your first month’s payment will go toward interest.
Student loan news updates
Following the pandemic-related suspension, federal student loans began to accrue interest again on September 1, 2023, with payments restarting in October.
Early in his presidency, Biden unveiled a comprehensive student loan forgiveness plan that would erase up to $10,000 in federal student loan debt for borrowers earning less than a particular income level. Although the Supreme Court rejected the original student loan forgiveness plan, the Biden administration continues to investigate forgiveness possibilities.
Currently, the Biden administration is working with the US Department of Education on a plan to give the following:
- Borrowers with federal student loan debt balances that have increased owing to interest can receive up to $10,000 in relief.
- Undergraduate-only borrowers whose loans commenced payments 20 or more years ago, as well as all other borrowers whose loans entered repayment 25 or more years ago, will receive one-time loan forgiveness.
- Benefits for borrowers who are eligible but have not signed up for forgiveness under various federal programs, such as Public Service Loan Forgiveness.
- Additional relief for borrowers whose schools were closed or otherwise penalized by the agency for leaving students with unmanageable debts or delivering inadequate value.
Furthermore, the administration has sought to reform and improve federal programs such as PSLF, which provides borrowers with delayed relief and forgives loans for borrowers whose schools have closed. On December 4, the Department of Education announced the cancellation of an additional $5 billion in federal student loan debt, bringing the total amount canceled under the Biden administration to $132 billion.
How the Fed rate hikes impact student loans
The Federal Reserve hiked interest rates 11 times between early 2022 and late 2023 to keep inflation under control. According to observers, a final hike is still possible, but not inevitable. The federal fund’s target range is currently 5.25-5.5%, the highest level in 22 years.
While federal student loans for the 2022-23 school year are already established, the Fed’s choices may influence new private student loans and refinancing. They also have an impact on federal student loan rates for the 2023-24 school year.
Borrowers with variable-interest private student loans are most affected by the Fed rate. If you already have a loan, this could be a good time to refinance it to a fixed rate. If you’re taking out a new private student loan, you might choose to start with a fixed rate.
What to know about the FAFSA
The FAFSA is the sole way to obtain federal student loans, therefore all eligible students should complete the form if they plan to borrow money for college.
- When does the FAFSA become available? Every year on October 1, the FAFSA application opens. The FAFSA for the school year 2023-24 opened on October 1, 2022.
- When is the FAFSA due? The federal FAFSA due is June 30 for the award year for which you are seeking funds. The FAFSA for the school year 2023-24 is due on June 30, 2024. However, some governments and colleges set earlier deadlines.
- Who is qualified for the FAFSA? The FAFSA is open to all US citizens, qualified noncitizens, and DACA recipients. However, government financial help is only available to US citizens and qualifying noncitizens.
What happens if you make a mistake on the FAFSA? If you have had a significant financial event since submitting the FAFSA or if your personal information has changed, you can update your FAFSA after the fact.
In Conclusion
Federal student loan interest rates are quite modest when compared to historical levels. If you need student loans to pay for college, read about the interest rates and how they work before applying. Always use the Free Application for Federal Student Aid (FAFSA) to exhaust all of your federal student loan alternatives before looking into the finest private student loans to fill in the gaps. Whether you pick government or private loans, only borrow what you need and can afford to return.
If you have student loans and need help paying them, you may want to explore refinancing—but keep in mind that doing so may result in the loss of any safeguards you receive from federal loans. If refinancing is the appropriate option for you, compare all of the best student loan refinance firms, which offer affordable rates and can accommodate unique debt situations.
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