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Jennifer Calonia is an L.A.-based writer and editor. She’s covered topics like debt, saving money and credit cards. You can find her work on Business Insider, Forbes and more.
Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans.
Mark Kantrowitz is an expert on student financial aid, the FAFSA, scholarships, 529 plans, education tax benefits and student loans.
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Student loans can be a useful way to fill in financial gaps when paying for higher education expenses, but they come with a cost. Student loan interest rates determine how much money you’ll ultimately owe, so it’s important to know what your interest rate is and how it affects your loans.
Federal student loans for undergraduates currently have an interest rate of 4.99 percent for the 2022-23 school year, while graduate students have interest rates of 6.54 percent or 7.54 percent for unsubsidized loans or PLUS loans, respectively. Private student loan interest rates range from 1 percent to 13 percent and are based on your credit score.
Depending on the kind of student loan you have or are looking to get, interest rates vary. About 90 percent of student loan debt is comprised of federal loans, with interest rates ranging from 4.99 percent to 7.54 percent. Average private student loan interest rates, on the other hand, can range from 3.22 percent to 13.95 percent fixed and 1.29 percent to 12.99 percent variable. While federal student loan rates are the same for every borrower, private student loan rates vary widely based on the lender, the type of interest rate (fixed or variable) and the borrower’s credit score.
*Includes autopay discount. Interest rates as of Aug. 16, 2022.
Compare lenders: Private student loan rates
*Includes autopay discount. Interest rates as of Aug. 16, 2022.
Compare lenders: Refinance student loan rates
Federal student loan interest rates and private student loan interest rates are closely related; when federal student loan rates drop, private student loan rates are likely to follow. This is because both types of loans tend to follow larger economic market trends.
Each spring, federal student loan interest rates are set by Congress based on the high yield of the last 10-year Treasury note auction in May. New rates apply to student loans disbursed from July 1 to June 30 of the following year. Federal loans are fixed, meaning that the rate will not fluctuate for the life of the loan. The interest rate you receive on a federal student loan is not determined by your credit score or financial history.
Interest charges differ between subsidized and unsubsidized loans. For federal subsidized loans, the government pays your interest charges for you while you’re in school at least half time, during your grace period and while you’re in deferment. The amount you’ll owe once your loan is in repayment will include only your original principal balance, loan fees and interest accrued moving forward.
With federal unsubsidized loans, interest charges start accruing immediately after funds are disbursed. If you choose to hold off on making loan payments until later, the accumulated student loan interest gets added to your principal balance when the loan enters repayment.
With that said, interest rates on federal student loans are temporarily set to zero through Dec. 31, 2022, due to impacts of the coronavirus pandemic.
Private student loans are funded by banks, credit unions and online lenders, so interest rates vary from lender to lender. Many private student loan lenders offer both fixed and variable rates, so your interest rate could fluctuate over the life of the loan if you choose a variable-rate option.
Most student loan lenders set rates based on the Libor or the Secured Overnight Financing Rate (SOFR). However, while rates are tied to this benchmark, private lenders also typically evaluate your credit score, income and financial history to determine your interest rate. Generally, the better your financial health and credit score, the lower your interest rates will be. In order to access this information, many lenders will run a hard credit inquiry, which can knock your credit score down a few points – although you can usually get a preview of your rates and terms with only a soft credit check.
When the coronavirus hit in spring 2020 and the Fed cut interest rates, student loan rates plummeted. Federal student loan rates were at their lowest point in years, and borrowers could take out private student loans or refinance existing loans with rock-bottom rates as well. Federal student loan interest has also been waived and will remain waived through Aug. 31, 2022.
However, as the economy recovers from the pandemic, the Fed has been regularly raising rates. Federal student loan interest rates are up more than a percentage point for the 2022-23 school year, and private student loan rates are also starting to rise again. Rates will likely continue to rise as 2022 progresses.
Student loan interest rates are expected to rise throughout 2022. The federal funds rate increased by 75 basis points in June, and Fed officials predict further increases. This could translate to higher student loan rates for both federal and private products.
While the president has no say in student loan interest rates, Biden has been seeking other ways to make college more affordable for students — and reduce the need for student loans altogether. Among his proposals are subsidized tuition at minority-serving institutions and higher Pell Grant values.
He has also been exploring avenues of forgiving existing student loan debt. However, any student loan forgiveness measures would likely apply only to federal student loans.
Calculating your student loan interest can help you determine your monthly budget. To calculate how much interest you pay each month, use the following steps:
Let’s say you’re charged 5 percent interest on your $10,000 loan every month. Here’s what those steps look like:
In this scenario, you’ll pay $41.10 in interest your first month. As you pay down the principal balance, less of your monthly payment will go toward interest.
Keep in mind that some private loans do carry a variable rate, so the daily interest rate may fluctuate over the life of the loan, typically on a monthly, quarterly or annual basis. You can also use a student loan calculator to calculate your monthly interest charge.
Federal student loans can be either subsidized or unsubsidized. The primary difference between the two options is the way you’ll pay the interest, your total debt after graduation and your repayment plan. Unsubsidized loans are a type of federal loan that accrue interest immediately after they’re disbursed, while subsidized loans are a type of federal loan where interest is not charged until you enter repayment.
Direct Unsubsidized Loans:
Direct Subsidized Loans:
Student loan interest rates can be either fixed or variable. Fixed interest rates are a type of interest rate that doesn’t change over your loan term, so you’ll know upfront how much your total cost to borrow will be and what your monthly payments will look like. Variable interest rates are a type of interest rate that changes based on market conditions, so your monthly payment may increase or decrease periodically.
Learn more: Fixed- vs. variable-rate student loans
If you’re looking to minimize your student loan interest rate, you have a few options:
If you’re considering taking out a student loan, the best way to find a good interest rate is to shop around with multiple lenders. It’s usually best to start your search with federal student loans, but private student loans are a good way to supplement. While you will be charged higher interest rates if your credit score needs work, there are lenders that cater specifically to borrowers with bad credit.
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.
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