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Interest Rates on Federal Student Loans Just Ticked Down
By Kaitlin Mulhere MONEY RESEARCH COLLECTIVE
New rates for the 2025-2026 school year just took effect.
Interest rates on federal student loans just dipped slightly, though they remain high compared to what borrowers have paid over the past decade.
Undergraduate student loans now carry an interest rate of 6.39%, down from 6.53% during the 2024-2025 academic year. Graduate direct loans have dropped to 7.94% from 8.08%. And PLUS loans for graduate students and parents of undergrads sit at 8.94%, compared with 9.08% last year.
The rates, which were set based on the results of a Treasury auction in May, took effect on Tuesday.
This is the first time since the summer of 2020 that interest rates on federal student loans have decreased — a ripple effect from the macroeconomic environment. Since last summer, the Federal Reserve has cut its benchmark lending rate three times in an effort to curb inflation. While borrowing costs on all kinds of products have decreased from their post-pandemic peaks, any further Fed rate cuts are likely on hold for now.
Still, when looking at recent history, the financing charges students will pay during the 2025-2026 school year are quite expensive. From 2011 to 2022, for example, undergraduate borrowers never paid more than 5.05%, and in five of those years, they paid less than 4%.
How interest rates on federal student loans are set
Interest rates on federal student loans are based on the high yield of the 10-year Treasury note at auction in May, plus a fixed percentage add-on that’s dictated by law. The rates are fixed, meaning all borrowers who take out a loan between July 1, 2025, and June 30, 2026, will pay the rates that took effect this week for the entire loan repayment term (unless they refinance their debt into a private loan).
Federal loans also carry a one-time origination fee, which increases their overall cost. The fees are currently 1.057% for undergraduate and graduate direct loans and 4.228% for PLUS loans.
While rates are decreasing this year, because the change is so modest, the resulting savings will be minimal. For example, an undergraduate who borrows $7,000 in subsidized loans for the upcoming school year would pay about $2,490 in interest charges over a 10-year repayment period. That’s roughly $60 less than a borrower would pay for the same loan and repayment term taken out during the 2024-2025 school year.
Student loan interest rates on the private market currently range from 2.99% to 17.99%, though only the most creditworthy borrowers will qualify for the lowest rates, and almost all undergraduate borrowers will need a cosigner to get approved for a private student loan.
That’s not the case for federal student loans; most have no credit requirement. The exception is PLUS loans, which do require a basic credit check to confirm the borrower doesn’t have any recent delinquencies, defaults or bankruptcies.
Even if you can qualify for lower rates on the private market, experts still recommend students use federal loans first, as they have better borrower protections and more flexible repayment options.
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Kaitlin Mulhere is an editor at Money.com, where she oversees the website’s higher education coverage, including stories on student debt, college costs and financial aid, and the value of a college degree. She also runs Money’s annual Best Colleges ranking. In a previous role at Money, Mulhere ran the magazine’s franchise rankings, including Best Places to Live, Best Banks and Best Places to Travel. In her time at Money, she’s written about everything from the incredible costs tied to training as an Olympic figure skater to tips for women to afford freezing their eggs to fantasy football-inspired investing. Over the years, she’s participated on several panels on college topics hosted by the Education Writers Association, National Association of State Treasurers and National Press Club; and she’s talked about Money’s work in media outlets including Good Morning America, The Chronicle of Higher Education, Newsday, Great Day Washington and more. Before joining Money in 2015, Mulhere wrote about college news for Inside Higher Ed and covered local education at The Keene (N.H.) Sentinel. She’s a graduate of the University of Florida, with bachelor’s degrees in journalism and political science.