Current Student Loan Rates
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By Mark Kantrowitz

May 13, 2021

Federal student loan rates reset each year on July 1. New federal student loans for undergraduate borrowers disbursed between July 1, 2021 and June 30, 2022 will have an interest rate of 3.734%, up from 2.75% in the previous year.

What is a student loan rate?

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.

What’s the difference between subsidized and 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 do interest rates affect my repayments?

Student loan rates are important because they 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). 

That’s why interest rates matter, and it’s important to bear that in mind when choosing a student loan with various repayment options.

How do lenders calculate current student loan rates?

Lenders generally calculate interest using a daily interest formula. That formula is:

  • Number of Days Since Last Payment x (Outstanding Principal Balance × Interest Rate Factor) = Interest amount

Your monthly balance includes your principal and daily accrued interest.

While this loan rate formula applies to many loan types, it’s important to note that the government sets federal student loan rates.

Do student loans build interest?

Most federal student loans and private student loans accrue interest daily. That means your lender will use a daily interest formula to figure out the total amount of interest accrued on a given day, and then add it to your monthly balance.

Each month you are required to repay the accrued interest that built up throughout the repayment period.

However, subsidized federal student loans are an exception. In this case, the federal government typically pays the loan interest while you are in school and during a six-month grace period after you graduate. So, with a subsidized loan, the interest doesn’t build on your loan until after the grace-period. 

What’s the difference between a fixed rate and a variable rate?

Student loans may offer a fixed interest rate or a variable interest rate.

Fixed-rate loans have the same interest rate throughout the lifetime of the loan. If you borrow money at an annual loan rate of 5.5% for a duration of 10 years, you’ll continue to pay the same loan rate even if your lender increases its interest rates for new loans.

A variable rate can go up and down based on market conditions. That means a borrower could take out a 10-year student loan with a variable rate of 3.0% per year. But after two years of repayment, the borrower’s interest rate could increase to 4.5% annually. 

Private lenders calculate variable rates by relying on a market index rate such as the 3-month LIBOR index.

These benchmark rates are a representation of the cost of borrowing money in the U.S. and abroad — and generally tell banks how much it should cost to borrow cash.

Private lenders tend to offer a range of both variable-rate loans and fixed-rate loans. 

Do federal student loans have fixed interest rates?

All federal student loans offer a fixed interest rate. The government resets these interest rates every year on July 1.

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

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

Are student loan rates going up?

Yes, federal student loan rates are going up, as of July 1, 2021. 

Federal student loan interest rates will reset on July 1, 2021. Student loans disbursed between July 1, 2021 and June 30, 2022 will have the new, higher rates.

Variable private student loan rates could increase at any time based on market conditions. When considering a private loan with a variable rate, you should ask your lender how often the rate may change. In some cases it can be monthly while others may only adjust every three months or less. 

What are the new federal student loan rates?

Federal student loan rates will reset on July 1, 2021, and will apply to all new loans disbursed between July 1, 2020 and June 30, 2021.

The federal rates for the 2021-2022 academic year are:

  • 3.73% for undergraduate Federal Direct Stafford loans, up from 2.75%
  • 5.28% for graduate Federal Direct Stafford loans, up from 4.30%
  • 6.28% for Federal Direct PLUS loans (including Grad PLUS and Parent PLUS loans), up from 5.30%

These fixed rates only apply to loans disbursed between July 1 2021 and June 30, 2022.

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

How will new interest rates affect student loans?

The rate increase will not affect existing federal loans. Only new loans disbursed between July 1, 2021 and June 30, 2022 will have the current interest rates. 

Because federal student loan rates are going up, new student loans will be more expensive than in previous years. However, rates for the 2020-2021 academic year were at record lows. Although the new rates are higher than last year’s rates, they are still relatively low.

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). 

Borrowers with more than $30,000 in U.S. federal loans can instead opt for an extended repayment period of up to 25 years. Some federal borrowers may qualify for an income-driven repayment plan, which could extend the loan term to 25 years.

The current federal loan 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.

Instead, federal loan rates determine the amount of interest a borrower will pay on a student loan. This does not affect the duration of the repayment schedule.

It’s important to note that current federal rates only apply to new loans. If you have an existing federal student loan, your interest rate does not change when rates are updated on July 1 each year.

What are the current interest rates for private loans?

The government does not set private student loan rates. Instead, private lenders set their rates, which can vary depending on the loan you take out.

Interest rates on private student loans are at historic lows. Fixed rates are as low as 3.49%, and variable rates are as low as 1.05%.

Fixed rates on private student loan refinance have decreased to as low as 2.97%, and variable rates have dropped to 1.61%.

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.

What type of student loan has the lowest interest rate?

Keep in mind that low interest rates aren’t the only factor you should consider when shopping around for student loan options.

Private lenders offering variable interest rates will often advertise the lowest marketable rate. But remember, variable rates can go up or down based on market activity over the course of your loan.

That means it’s worth carefully considering all of your loan options before accepting a private variable-rate loan. 

Similarly, interest rates offered through private lenders are often linked to your credit score. As a result, there’s a good chance that you won’t be able to qualify for the lowest possible interest rate that a lender advertised to you if your credit score is sub-par.

Federal student loans typically offer the lowest interest rates, which are always fixed.

That means your federal student loan interest rate won’t change during your repayment period. Federal student loans also often come with many benefits that private student loans don’t offer, such as subsidized payments for your interest while you’re in school. 

Can you ask for a lower interest rate on student loans?

If you’re borrowing money for college from the government, you can’t ask for a lower interest rate on your student loans. The government sets federal rates each year and they are non-negotiable.

You can ask for a lower rate for a private loan, but there is no guarantee you will get it.

If interest rates go down, you may want to consider refinancing to a loan with a lower rate. But, keep in mind that if you refinance a federal student loan to a private one you will lose all of the benefits of a federal loan (such as loan forgiveness options). 

How do I get my student loan interest rate lowered?

If you’ve borrowed a fixed-rate student loan, your interest rate generally cannot be lowered without refinancing.

That being said, many loan servicers will offer a nominal interest rate reduction for borrowers that enroll in auto debit schemes. 

An auto debit scheme is simply a direct deposit order lenders use to ensure that you make your monthly loan repayments on time. Many loan servicers offer a 0.25% interest rate reduction on eligible private and federal loans in situations where the borrower is using a designated auto debit scheme.

If you have a variable-rate student loan, your lender may lower your rate due to market activity.

However, variable rates work both ways, and changes in market activity could also cause your student loan interest rate to go up.

Can I lower my interest rate by 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. 

That means if you’ve got an existing federal student loan, you can’t refinance that loan into a new federal student loan to take advantage of new, lower loan rates.

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 include the current payment pause 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. 

That being said, current private student loan interest rates are sitting as low as 2.97% for fixed-rate products and as little as 1.61% on variable products. These rates are certainly attractive, although it’s always worth shopping around to ensure you’re getting the best possible refinancing rate.

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 plans.

What is the formula for federal student loan interest rates?

The formula for federal student loan rates is different than the ordinary interest rate formula we’ve already covered. That’s because federal loan rates are formulated using government benchmarks.

Every year, new federal interest rates are introduced based on the high yield of the most recent 10-year Treasury Note auction. These auctions occur every May.

In the latest 10-year Treasury Note auction on May 12, 2021, there was a high yield of 1.684%, up from 0.70% in 2020. As a result, federal rates will increase for the 2021-2022 academic year.

Does the government provide relief for borrowers affected by COVID-19?

In March 2020, the office of Federal Student Aid introduced a temporary 0.0% interest rate. 

This rate was originally intended to last from March 13, 2020 through September 30, 2020. But it was extended through December 31, 2020, and then again through January 31, 2021, and most recently the student loan relief program was extended through at least September 30, 2021.

In addition to the temporary rate relief, the Department of Education has also suspended student loan payments and stopped all collections on defaulted loans. These measures are also in effect through at least September 30, 2021.

The 0.0% interest rate applies only to existing federally held student loans, although borrowers can still choose to make interest payments on their loans if they wish.

Which federal student loans does the 0% rate apply to?

The US Government’s 0.0% federal student loan rate applies to the following types of federal loans:

  • Direct Loans (defaulted and nondefaulted)
  • Federal Family Education Loan (FFEL) Program loans (defaulted and nondefaulted)
  • Federal Perkins Loans (defaulted and nondefaulted)
  • Defaulted Health Education Assistance Loan (HEAL) loans

A good place to start:

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