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Student loans — federal or private — begin accruing interest when they’re disbursed, and the borrower is responsible for paying the interest on all but subsidized federal student loans during grace periods or deferment.

There are a few exceptions, though, including periods of deferment for certain subsidized loans. And if you have federal student loans that were subject to the payment pause that began in 2020, it’s important to know when those loans begin accruing interest again in 2023.

Interest Accrual Basics and Exceptions

As a general rule, interest begins accruing on a student loan as soon as it’s disbursed. While the repayment of the loan is usually subject to a grace period (detailed later in this article), the interest continues to accrue even while the payments are paused.

The one exception is when certain loans are on deferment. Interest on the following types of loans usually does not accrue when a loan is on deferment:

•   Direct Subsidized Loans

•   Perkins Loans

•   The subsidized portion of Direct Consolidation Loans

•   The subsidized portion of Federal Family Education Loan Consolidation Loans

The other major exception is the federal student loan forbearance that the government implemented in March 2020. Not only did this pause federal student loan payments, it also set federal student loan interest rates at 0%, thereby pausing all interest accrual. The 2023 debt ceiling bill officially ended the payment pause, requiring interest accrual to resume on Sept. 1 and payments to resume on Oct. 1, 2023.

Some private student loan issuers offer deferment or forbearance for specific reasons. Any unpaid interest will likely accrue and be added to the principal after the payment pause, though.

The Basics of Student Loan Interest

A student who takes out a student loan (or a parent who takes out a parent-student loan in their own name) signs a promissory note outlining all the terms of the loan, which include the loan amount, interest rate, disbursement date, and payment schedule.

Federal student loans issued after July 1, 2006, have a fixed rate. The repayment default is the standard 10-year plan, but there are options, such as income-based repayment or a Direct Consolidation Loan, that can draw out repayment to double that or more. The Saving on a Valuable Education (SAVE) Plan is one of the federal student loan repayment options to consider.

The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under this federal income-driven repayment plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

Private student loans are not eligible for federal income-driven repayment plans. Interest rates on private student loans may be fixed or variable, and are based on your — or your cosigner’s — financial history. The repayment term can be anywhere from five to 20 years.

When does interest start on student loans? Federal and private student loans typically begin accruing interest when they’re disbursed. With federal student loans and most private student loans, payments are deferred until after you graduate. Interest will have accrued, and in almost all cases you’re responsible for paying it.

Interest and Grace Periods by Loan

Capitalized interest on student loans can significantly increase how much a borrower owes. This is when a lender adds unpaid interest to your principal loan balance and then charges interest on your larger balance.

The Department of Education implemented new regulations in July 2023 eliminating all instances of interest capitalization that are not specified in the Higher Education Act of 1965 (HEA). That means federal student loan interest capitalization no longer occurs when a borrower first enters repayment status following the grace period.

A federal student loan borrower who exits a period of deferment on an unsubsidized loan or who overcomes a partial financial hardship on the Income-Based Repayment Plan may face capitalized interest charges. Federal student loan interest capitalization can also occur upon loan consolidation. These are the few instances where federal law requires interest capitalization.

Fixed interest rates on newly disbursed federal student loans are determined by formulas specified in the HEA. These are the rates and loan fees (deducted from each disbursement) for the 2024–25 school year:

•   6.53% for Direct Subsidized or Unsubsidized loans for undergraduates

•   8.08% for Direct Unsubsidized loans for graduate and professional students

•   9.08% for Direct PLUS loans for graduate students, professional students, and parents

Recommended: Types of Federal Student Loans

Unsubsidized Student Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students with no regard to financial need.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after graduation.

Subsidized Student Loans

Federal Direct Subsidized Loans are available to undergraduates with financial needs.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after you leave school. The government pays the interest during those grace periods and during any deferment.

Direct PLUS Loans

Taken Out by a Parent

A Parent PLUS Loan acquired to help a dependent undergraduate is unsubsidized.

Loan fee: 4.228%.

Some private lenders refinance Parent PLUS loans at what could be a lower rate.

Grace period: First payment is due within 60 days of final disbursement, but a parent can apply to defer payments while their child is in school at least half-time and for six months after.

Taken Out by a Graduate Student or Professional Student

Grad PLUS Loans are available to students through schools participating in the Direct Loan Program.

Loan fee: 4.228%.

Grace period: Automatic deferment while in school and for six months after graduating or dropping below half-time enrollment.

Private Student Loans

Some banks, credit unions, state agencies, and online lenders offer private student loans.

Rate and fee: Rates can be fixed or variable, and rates and fees vary by lender

Grace period: Student loan interest accrual begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school.

How Is Interest on Student Loans Calculated?

Student loans typically generate interest every day. Your annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and you are then charged interest each day on the total amount you owe.

That interest is added to your total balance, and you’re then charged interest on the new balance — paying interest on interest until the loans are paid off.

If you don’t know what your monthly payments will be, a student loan payment calculator can help. This one estimates how much you’ll be paying each month so you can better prepare for your upcoming bills.
The amount you pay each month will be the same, but the money first goes toward paying off interest and any fees you’ve been charged (like late fees); the remainder goes to pay down the principal of the loan.

As you pay down your loan, because the principal is decreasing, the amount of interest you’re accruing decreases. And so, over the life of your loan, less of your monthly payment will go toward interest and more will go toward the principal. This is known as amortization

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How You Could Save on Interest

Because interest can add up so quickly, it’s important to pay attention to the interest rates you’re paying on your student loans.

Student loan refinancing — taking out a brand-new loan that pays off your current loans — can lower the amount of interest your loans accrue if you qualify for a lower interest rate or a shorter term. To see how refinancing might save you money, take a look at this student loan refinance calculator.

Even a small difference in interest rates could help you save a substantial amount of money paid in total interest over the life of the loan, depending on the term you select.

It’s important to know, though, that refinancing federal student loans will make them ineligible for federal benefits like income-driven repayment plans and Public Service Loan Forgiveness.

💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

The Takeaway

When does student loan interest start accruing? The minute the loan is disbursed, and you’re usually responsible for paying it. It’s important for borrowers to understand and pay attention to capitalized interest.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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You may have noticed when shopping around for student loans that some lenders display an interest rate, while others show an APR. What’s the difference? The main distinction is that APR (which stands for annual percentage rate) includes any fees or other charges the lender may add to the loan principal. The “interest rate” does not.

When shopping for a student loan, it’s key to know whether you’re looking at an APR or an interest rate, since this can have a significant impact on the total cost of the loan. Read on to learn more about APR vs. interest rate, what each number includes, and how to compare student loan rates apples to apples to find the best deal.

How Do Student Loan Interest Rates Work?

As with any loan, the interest rate represents the amount your lender is charging you to borrow money. It’s expressed as a percentage of your loan amount (or principal) and doesn’t reflect any fees or other charges that might be connected to your loan. Interest rates can be fixed (the same for the life of the loan) or variable (may fluctuate over the life of the loan).

Interest rates work differently depending on whether a student loan is federal or private. Congress sets the interest rate for federal student loans. The rate is fixed — and it’s the same for all borrowers. The federal student loan interest rate for undergraduates is 6.53% for new loans taken out for the 2024-25 school year, effective from July 1, 2024 to July 1, 2025.

Private student loan companies are allowed to set their own interest rates, which may be higher or lower than rates for federal loans. Interest rates on private loans may be fixed or variable and typically depend on the creditworthiness of the borrower (or cosigner) — those with higher credit scores generally qualify for lower rates, while borrowers with lower credit scores tend to get higher rates.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

What Is the Student Loan APR, and How Is It Different From Interest Rate?

A loan’s annual percentage rate (APR) represents a more comprehensive view of what you’re being charged. It tells you the total cost of the loan per year, including any fees, such as an origination fee. Because of that, a loan’s APR may be higher than its interest rate.

Looking at the APR helps you compare different loan offers and get a real picture of the overall cost you will pay for borrowing money for your education. If a loan doesn’t have any fees then the interest and the APR will be the same.

Federal student loans publish interest rates but not the APRs, so it’s important to keep in mind that the headline interest rate of a federal student loan is not the total cost of that loan. These loans also charge an origination fee, which is 1.057% for Direct Subsidized and Direct Unsubsidized loans, and 4.228% for Direct PLUS loans (unsubsidized loans for the parents and graduate/professional students.)

For private student loans, origination fees vary by lender. While some private lenders charge origination fees, it’s possible to find a private loan that doesn’t come with these fees. However, it’s important to keep in mind that private student loans generally don’t come with the same protections as federal student loans, such as income-driven repayment plans and forgiveness programs.

What Fees / Charges Might Be Included in a Student Loan APR?

For student loans, the most common fee is the loan origination fee. Whether the loan is federal or private, this fee is typically based on a percentage of the total loan amount and will be deducted from your loan amount before the loan is dispersed. This means that if you borrow $10,000 and the origination fee is 1.057%, $105.70 will be deducted from your total loan amount — so you would actually receive $9,894.30 for the year.

While origination fees can be small, the cost can add up. Because these fees are deducted from the total loan amount, you are paying the fee with borrowed money and will pay interest on the fee paid.

Both private and federal student loans may also have late fees and returned payment (or insufficient funds) fees, both of which add to the total amount you must repay. However, you can avoid these fees by always paying your bill on time and making sure you have enough money in your bank account to cover the payment.

Fees vary widely from one lender to the next, and some private lenders may not charge any fees.

If a Loan’s Interest Rate and APR Are the Same, Does That Mean There Are No Hidden Fees?

Typically, yes. Just keep in mind that interest rates published for federal student loans are not APRs and do not include the origination fee. This fee will come out of the amount of money that is disbursed (paid out) to you while you’re in school.

The student loan APRs listed by private lenders include any additional charges and fees. If the lender doesn’t charge any fees, the APR and interest rate will be the same.

Recommended: Pros and Cons of Refinancing Student Loans

When Shopping for a Loan, Should I Look at Interest Rate, APR, or Both?

Whenever available, you’ll want to look at the APR of a student loan, since this number allows a more apples-to-apples comparison of loan costs. If you just compare straight interest rates, you can miss the big picture in terms of the total cost of the loan. Sometimes those additional fees can make a big impact.

It’s also important to know when the interest rate or APR will kick in. Although the interest rate is the same for federal Direct Subsidized and Direct Unsubsidized loans, the latter loan ends up costing significantly more because interest starts accruing from the time the funds are disbursed. With subsidized federal loans, the interest does not accrue while you are still in school.

With private student loans, interest typically begins to accrue as soon as the loan money is disbursed to your school.

Whether interest starts accruing immediately or later, you typically don’t have to start making any payments on private or federal student loans until after you graduate.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

The Takeaway

A student loan’s interest rate is the cost of borrowing money and is expressed as a percentage of the loan amount. APR includes the interest rate as well as the additional costs and fees associated with borrowing. As a result, it gives you a more complete picture of the total cost of the loan. Understanding APR vs. interest rate is important when you’re researching best rates for student loans. It will help you make informed decisions that may lower your cost of borrowing.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is a good APR for a student loan?

For new loans taken out for the 2024-25 school year, the federal student loan interest rate is 6.530% for undergraduates (whether the loan is unsubsidized or subsidized). For graduate students it’s 8.08%, and for parents it’s 9.08%.

Average private student loan annual percentage rates (APRs) range from just under 4% to almost 15% percent.

Is APR better than interest rate?

The annual percentage rate (APR) gives you a more accurate picture of the true cost of financing. The APR of a loan tells you how much you will pay for a loan over the course of a year after accounting for the interest rate as well as any extra costs, like origination fees.

When comparing loan offers, it’s generally better to compare APRs than interest rates, since this allows you to compare loan offers apples to apples.

Can APR and interest rate be the same?

Yes. If no fees are added to your loan amount, the interest rate and the annual percentage rate (APR) will be the same.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Student loans are complicated, especially when it comes to figuring out how much the loan will actually cost you over time. APR, or annual percentage rate, reflects the total cost of the loan, including the interest rate and any fees.

Knowing how APR formulas affect your student loans is an important part of maintaining financial health, and can even help you decide whether or not you should look into alternative loan repayment strategies, like consolidation or refinancing.

What Is APR For Student Loans?

As briefly mentioned, your annual percentage rate, known as “APR,” is the interest and fees you are responsible for paying on your student loan balance over the course of a year. The APR formula shows you your actual cost of borrowing, including your interest rate and any extra fees or costs, like origination fees or forbearance interest capitalization.

APR vs Interest Rate on Student Loans

The interest rate on your student loan is the amount your lender is charging you for the loan, expressed as a percentage of the amount you borrowed. For example, the interest rate for Federal Direct Subsidized Loans and Unsubsidized Direct Loans is currently 6.53% for 2024-25, which means that you would be responsible for paying your lender 6.53% of the amount of money you borrowed in yearly interest.

That 6.53%, however, does not include other costs that are considered in the APR formula, including disbursement costs. For loans with no fees, it is possible that the APR and interest rate will match. But in general, when comparing APR vs interest rate, the APR is considered a more reliable and accurate explanation of your total costs as you pay off your student loans. If you’re shopping around for student loans or planning to refinance your loans, the APR offered can help you decide which lender you would like to work with.

Recommended: Student Loan Info for High Schoolers

An Example of How APR Is Calculated for Student Loans

Let’s say you take out a student loan for $20,000 with an origination fee of $1,000 and an interest rate of 5%. An origination fee is the cost the lender may charge you for actually disbursing your loan, and it is usually taken directly out of the loan balance before you receive your disbursement.

So, in this example, even though you took out $20,000, you would only receive $19,000 after the disbursement fee is charged. Even though you only receive $19,000, the lender still charges interest on the full $20,000 you borrowed.

The APR accounts for both your 5% interest rate and your $1,000 origination fee to give you a new number, expressed as a percentage of the loan amount you borrowed. That percentage accurately reflects the true costs to the consumer. (In this example, if the loan had a 10-year term, the APR would be 6.124% )

What Is a Typical Student Loan APR?

For federal student loans, interest rates are determined annually by Congress. Federal loans also have a disbursement fee, which is a fee charged when the loan is disbursed.

APRs for federal student loans may vary depending on the loan repayment term that the borrower selects. Federal student loans are eligible for a variety of repayment plans, some of which can extend up to 25 years. Generally speaking, the longer the repayment term, the larger amount of interest the borrower will owe over the life of the loan.

Typical APR for Private Student Loans

The interest rate on private student loans will vary by lender and so will any fees associated with the loan. As of June 2024, APRs on private student loans may vary from around 4% to upwards of 16% for fixed interest rates.

The interest rate you qualify for is generally determined by a variety of personal factors including your credit score, credit history, and income, among other factors. In addition to varying APRs, private student loans don’t offer the same benefits or borrower protections available for federal student loans — things like income-driven repayment plans or deferment options. For this reason, they are generally considered only after all other sources of funding have been reviewed.

How to Find Your Student Loan APR

By law, lenders are required to disclose the APR on their loans — including student loans. These disclosures help you make smart financial choices about your loans and ensure that you’re not blindsided by mystery costs when you take out a loan.

For federal student loans, the government lists the interest rates and fees online, but make sure to carefully examine any loan initiation paperwork for your exact APR, which will depend on other factors including the amount you plan to borrow, the interest rate, and origination fees.

If you’re currently paying off federal student loans, your student loan servicer can tell you your APR. If you use online payments, you can probably see your APR on your student loan servicer’s website or on your monthly bill.

If you’re shopping around for private student loans, your potential lenders must disclose the APR in their lending offer to you. Your APR will vary from lender to lender depending on many factors, which can include your credit score, any fees the lender charges, and how they calculate deferred interest, which is any unpaid interest that your minimum payment doesn’t cover.

One student loan tip — compare quotes and offers from various lenders closely. Once you’ve decided on a lender and taken out a loan, your APR should be reflected on your loan paperwork and usually on your lender’s online payment system.

Recommended: Understanding a Student Loan Statement: What It Is & How to Read It

The Takeaway

APR is a reflection of the total amount you’ll pay in both interest rate and fees for borrowing a student loan. Interest rate is just the amount of interest you will be charged. On loans with no fees, it’s possible for the interest rate and APR to be the same. Interest rates and fees for different types of federal student loans are published, but individual APRs may vary based on the amount you borrow and the repayment term you select.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is the APR on student loans?

APR or annual percentage rate is a reflection of the interest rate plus any fees associated with the loan. It provides a picture of the total cost of borrowing a loan and is helpful in comparing loans from different lenders.

Is the APR the same on subsidized and unsubsidized student loans?

The interest rate for unsubsidized and subsidized federal student loans is sent annually by Congress. These loans also have an origination fee. For the 2024-2025 school year the interest rate on Direct Subsidized and Unsubsidized loans is 6.53% and the origination fee is 1.057%. The APR for your loan will be determined by factors including the repayment term you select.

What is the typical interest rate on private student loans?

Interest rates on private student loans vary based on a variety of factors such as the lender’s policies, and individual borrower characteristics such as their credit score and income, among other factors. As of June 2024, interest rates on fixed private student loans hovered around 4% to upwards of 16%.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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The Department of Education announced that federal student loan interest rates are increasing to 6.53% for the 2024-25 school year on undergraduate loans, up from 5.50% from the previous year.

Here, we’ll discuss how federal student loan interest rates are determined, how they have changed over the years, and when they may be higher than private lender rates.

Overview of Federal Student Loan Interest Rates

The 2024-25 interest rate on Direct Subsidized loans for undergraduates is now 6.53% — the highest it’s been in history.

Below is an overview of how rates have increased over the last four years:

	School Year 2021 – 2022	School Year 2022 – 2023	School Year 2023 – 2024	School Year 2024 – 2025
Direct Subsidized and Unsubsidized Loans for Undergrads	3.73%	4.99%	5.50%	6.53%
Direct Unsubsidized Loans for Graduate or Professional Students	5.28%	6.54%	7.05%	8.08%
Direct PLUS Loans for Graduate or Professional Students or Parents of Undergrads	6.28%	7.54%	8.05%	9.08%

Recommended: What’s the Average Student Loan Interest Rate?

Why Federal Student Loan Interest Rates Can Vary From Year to Year

The reason that federal student loan interest rates fluctuates has to do with how and when federal student loan rates are set. By federal statute, they are determined once a year and are based on the high yield of the 10-year Treasury note last auctioned in May (for the upcoming school year).

That yield is then added to a required percentage to get the federal interest rate for loans disbursed on or after July of that year.

So in May 2020, when businesses were in lockdown due to Covid-19, the high yield of the 10-year Treasury note was less than 1%. In May 2022, as the Federal Reserve began to try to curb inflation by raising its rate, the high yield or index rate on the 10-year Treasury note was 2.94%, and in May 2023, as the economy was looking up in terms of inflation, the index rate was 3.448%.

💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.

Required Markups to the 10-Year Treasury Index Rate to Determine Federal Student Loan Interest Rates

The required percentage added to the high yield of the 10-year Treasury note last auctioned in May 2023 depends on the type of loan and borrower. The added percentages follow this schedule:

•   For Direct Subsidized and Unsubsidized loans for undergraduate students, the added percentage is 2.05%.

•   For Direct Unsubsidized loans for graduate and professional students, the added percentage is 3.60%.

•   For Direct PLUS loans for parents of undergraduate students and for graduate or professional students, the added percentage is 4.60%.

How Federal Student Loan Interest Rates Have Been Set Over the Years

The federal student loan program began in the 1960s. Over time, the way rates are set has changed due to legislative action. Here’s a general timeline of how federal student loan interest loans have been set:

From the 1960s to 1992

Originally, Congress set the interest rates for student loans. The rates were fixed and ranged from 6% in the beginning to 10% for the years 1988 to 1992.

From 1993 to 2003

Congress amended the law so that rates were variable rather than fixed and reset annually. The formula for federal student loan interest rates was the interest rate on short-term Treasury securities at a set time plus 3.1%. The rate was capped at 9.0%. Over the next six years, Congress lowered the added percentage and the cap.

Soon after switching to variable rates, Congress passed the Student Loan Reform Act, which authorized the Direct Loan program. The law changed the formula for calculating interest rates so that they were pegged to 10-year Treasurys, which aligned with the term or length of student loans. The markup was lowered to 1.0%, and the new formula was to be used starting in five years.

But in 1998, because the Direct Loan program was taking longer than expected to replace the old loan program, where banks provided the loans instead of the government, Congress postponed when the new formula would be used until 2003. In the meantime, the old formula was used but with a 2.3% add-on (instead of 3.1%).

From 2003 to Present

Several bills have been passed trying to make student loans more affordable, including a bill that fixed the rate at 6.8% starting in 2006. For Direct Unsubsidized loans for undergraduate students and Direct Unsubsidized loans for graduate and professional students, the federal student loan interest rate stayed at 6.8% through 2013.

In 2013, a law enacted the current formula used to calculate federal student loan interest rates.

How Private Student Loan Interest Rates Differ From Federal Loan Rates

Of course, private student loan rates will fluctuate with market trends and from lender to lender. That said, private student loan rates for 10-year loans are generally higher than the federal interest rate when you are comparing rates concurrently on offer.

However, this isn’t always the case when it comes to student loans for parents or graduate/professional students. For the 2024-25 school year, the interest rate on Direct PLUS loans is 9.08%. But in June 2024, some private student loan rates are actually lower.

Also, private student loan rates (and refinance rates) can be lower for a loan that has a shorter term length than the standard 10 years of federal loans.

What’s more, private student loan rates and student loan refinance rates that are currently on offer can very well be lower than the federal interest rate you received at the time of getting your loan.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

What Private Lenders Consider When Determining Your Interest Rate

As mentioned earlier, private lenders will look at your creditworthiness when determining your interest rate. This involves considering such factors as:

•   Credit History – When entering college, most students have little to no credit history. That means the lender could be unsure of their ability to repay the loan since students don’t typically have a history of paying any loans. This can lead to a higher interest rate.

•   Your School – Most four-year schools are eligible for private loans, but some two-year colleges aren’t. Additionally, applicants typically have to be enrolled at least half-time to qualify for private student loans.

•   Your Cosigner’s Finances – Since many private student loan applicants are relatively new to debt and have no credit history, they might be required to provide a cosigner. A cosigner shares the burden of debt with you, meaning they’re also on the hook to pay it back if you can’t. A cosigner with a strong credit history can potentially help secure a lower interest rate on private student loans.

The Takeaway

Federal student loan interest rates have fluctuated over the years. Currently, they are higher for 2024-25 than they were for 2023-24.

Typically, federal interest rates are lower than private student loans rates offered in the same year. But they can also be higher, particularly for parents borrowing to pay their children’s tuition and for graduate or professional students.

Also, private student loan rates (and refinance rates) on offer at the present time can be lower than federal interest rates from previous years or they can be lower on loans for term lengths shorter than the standard 10 years.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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A statute of limitations is a state law that limits the period during which a creditor or debt collector can bring action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired.

However, the statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations for debts has expired — and statutes of limitations don’t apply to some debts, including federal student loans. Here’s what you should know about statutes of limitations on debt.

What Is The Statute of Limitations on Debt?

Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.

To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus, which would then remain on the report for as long as allowed under the applicable credit reporting time limit. (For further evidence of how long debt can stick around, you might consider what happens to credit card debt when you die.)

Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.

How Long Until a Debt Expires?

The length of the statute of limitations is determined by state law. State statutes of limitations on debt typically vary from three years to more than 10 years, depending on the type of debt and when the contract was entered into.

Figuring out exactly which state’s laws your debt falls under isn’t always as simple as you might imagine. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause in the contract you signed mandating that the debt is governed by a specific state’s laws.

One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, the statute of limitations clock would start on the date that you entered into the payment plan.

In this example, simply entering into a payment plan counts as “activity” on the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.

It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.

After the statute of limitations on the debt has expired, the debt is considered time-barred.

Types of Debt

As mentioned, the length of the statute of limitations on debt can vary depending on the type of debt it is. To know which timeline applies, it helps to understand the different types of debt.

Written Contract

A written contract is an agreement that is signed in writing by both you and the creditor. This contract must include the terms of the loan, such as how much the loan is for and how much monthly payments are.

Oral Contract

An oral contract is bound by verbal agreement — there is no written contract involved. In other words, you said you would pay back the money, but did not sign any paperwork.

Promissory Notes

Promissory notes are written agreements in which you agree to pay back the amount of money by a certain date, in agreed upon installments and at a set interest rate. Examples of promissory notes are student loan agreements and mortgages.

Open-Ended Accounts

Open-ended accounts include credit cards and lines of credit. With an open-ended account, you can repeatedly borrow funds up to the agreed upon credit limit. Upon repayment, you can then borrow money again.

Statute of Limitations on Debt Collection

Each state has its own statute of limitations on debt collection. Here’s a breakdown of the varying timelines by state:

Statute of Limitations For Debts By State and Type of Debt

State	Written Contract	Oral Contract	Promissory Note	Open-Ended Account
Alabama	6	6	6	3
Alaska	3	3	3	3
Arizona	6	3	6	3
Arkansas	5	3	5	5
California	4	2	4	4
Colorado	3	3	3	3
Connecticut	6	3	6	3
Delaware	3	3	3	3
District of Columbia	3	3	3	3
Florida	5	5	4	4
Georgia	6	4	4	4
Hawaii	6	6	6	6
Idaho	5	4	5	4
Illinois	10	5	10	5
Indiana	6	6	6	6
Iowa	10	5	10	5
Kansas	5	3	6	3
Kentucky	15	5	10	5
Louisiana	10	10	10	3
Maine	6	6	6	6
Maryland	3	3	6	3
Massachusetts	6	6	6	6
Michigan	6	6	6	6
Minnesota	6	6	6	6
Mississippi	3	3	3	3
Missouri	10	6	10	5
Montana	8	5	5	5
Nebraska	5	4	5	4
Nevada	6	4	3	4
New Hampshire	3	3	6	3
New Jersey	6	6	6	6
New Mexico	6	4	6	4
New York	6	6	6	6
North Carolina	3	3	3	3
North Dakota	6	6	6	6
Ohio	8	6	6	6
Oklahoma	5	3	5	3
Oregon	6	6	6	6
Pennsylvania	4	4	4	4
Rhode Island	10	10	10	10
South Carolina	3	3	3	3
South Dakota	6	6	6	6
Tennessee	6	6	6	6
Texas	4	4	4	4
Utah	6	4	4	4
Vermont	6	6	14	3
Virginia	5	3	6	3
Washington	6	3	6	6
West Virginia	10	5	6	5
Wisconsin	6	6	10	6
Wyoming	10	8	10	6

Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors continuing to attempt to collect payments on the time-barred debt, such as in the case of credit card default. Remember, you still owe that money, whether or not the debt is time-barred. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.

Debt collectors may continue to contact you about your debt. But under the Fair Debt Collection Practices Act, debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)

Some debt collectors, however, may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult an attorney about your legal rights and resolution strategies.

Disputing Time-Barred Debt With Debt Collectors

If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.

One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, it may be necessary to repeat this process with the new collection agency.

Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. For one, your original creditor may continue to contact you through the mail and by phone.

Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred.

Statute of Limitations on Student Loan Debt

Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.

If you have federal student loan debt, you may consider managing your student loans through consolidating or refinancing. This can help you decrease your loan term or secure a lower interest rate.

Borrowers who hold only federal student loans may be able to consolidate their student loans with the federal government to simplify their payments.

Those with a combination of both private and federal student loans might consider student loan refinancing to get a new interest rate and/or loan term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).

All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain benefits, like forbearance and income-based repayment options.

Statute of Limitations on Credit Card Debt

The statute of limitations on credit card debts can generally range anywhere from three years to 10 years, depending on the state. However, the laws in the state in which you live aren’t necessarily what dictates your credit card statute of limitations. Many of the top credit issuers name a specific state whose laws apply in the credit card agreement.

How Long Does the Statute of Limitations on Credit Card Debt Last?

Here’s a look at how long can credit card debt be collected through court proceedings for each state in the U.S.:

Statute of Limitations on Credit Card Debt By State
State	Number of years
Alabama	3
Alaska	3
Arizona	6
Arkansas	5
California	4
Colorado	6
Connecticut	6
Delaware	3
District of Columbia	3
Florida	5
Georgia	6
Hawaii	6
Idaho	5
Illinois	5
Indiana	6
Iowa	5
Kansas	3
Kentucky	5 or 15
Louisiana	3
Maine	6
Maryland	3
Massachusetts	6
Michigan	6
Minnesota	6
Mississippi	3
Missouri	5
Montana	8
Nebraska	4
Nevada	4
New Hampshire	6
New Jersey	6
New Mexico	4
New York	6
North Carolina	3
North Dakota	6
Ohio	6
Oklahoma	5
Oregon	6
Pennsylvania	4
Rhode Island	10
South Carolina	3
South Dakota	6
Tennessee	6
Texas	4
Utah	6
Vermont	6
Virginia	3
Washington	6
West Virginia	10
Wisconsin	6
Wyoming	8

Effects of the Statute of Limitations on Your Credit Report

The statute of limitations on credit card debt doesn’t have an impact on what appears on your credit report. Even if the credit card statute of limitations has passed, your debt can still appear on your credit report, underscoring the importance of using a credit card responsibly.

Unpaid debts typically remain on your credit report for seven years, during which time they’ll negatively impact your credit (though its effect can wane over time). So, for instance, if the state laws of Delaware apply to your credit card debt, your statute of limitations would be four years. Your unpaid debt would remain on your credit report for another three years after that period elapsed.

This is why it’s important to consider solutions, such as negotiating credit card debt settlement or credit card debt forgiveness, rather than just waiting for the clock to run out.

How to Know If a Debt Is Time-Barred

To determine if a debt is time-barred — meaning the statute of limitations has passed — the first step is figuring out the last date of activity on the account. This generally means your last payment on the account, though in some cases it can even include a promise to make a payment, such as saying you’d soon work on paying off $10,000 in credit card debt.

You can find out when you made your last payment on the account by pulling your credit report, which you can access at no cost once per year at AnnualCreditReport.com.

Once you have that information in hand, you can take a look at state statutes of limitation laws. Keep in mind that it might not be your state’s laws that apply. If you’re looking for the statute of limitations for credit card debt, for instance, check your credit card’s terms and conditions to see which state’s laws apply.

Figuring out all of the relevant information isn’t always easy. If you’re unsure or have any questions, consider contacting a debt collections lawyer, who should be able to assist with answers to all your credit card debt questions.

What to Do If You Are Sued Over a Time-Barred Debt

Even if you know a debt is time-barred, it’s important to take action if you’re sued over it. You’ll need to verify that the statute of limitations has indeed passed, and you’ll need to come forward with that information. It may be helpful to work with an attorney to help you respond appropriately and avoid any missteps.

If you do end up going to court, it’s critical to show up. The judge will dismiss your case as long as you can prove that the debt is indeed time-barred. However, if you don’t show up, you will lose the case.

How to Verify Whether You Owe the Debt

If you’re not sure whether a debt you’ve been contacted about is yours, you can ask the debt collector for verification. Request the debt collector’s name, the company’s name, address and phone number, and a professional license number. Also ask that the company mail you a validation notice, which will include the name of the creditor seeking payment and the amount you owe. This notice must be sent within five days of when the debt collector contacted you.

If, upon receiving the validation notice, you do not recognize the debt is yours, you can send the debt collector a letter of dispute. You must do so within 30 days.

The Takeaway

Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.

While borrowing money can leave you in a stressful situation where you’re waiting for the clock to run out, it can also help you build your credit profile and access new financial opportunities.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Do I still owe a debt after the statute of limitations has passed?

Yes. The statute of limitations passing simply means that the creditor cannot take legal action to recoup the debt. Your debt will still remain, and it can continue to affect your credit.

Can a debt collector contact me after the statute of limitations has passed?

Yes, a debt collector can still contact you after the statute of limitations on debt passes as there isn’t a statute of limitations on debt collection. However, you do have the right to request that they stop contacting you. You can make this request by sending a cease communications letter.

Additionally, if you believe the contact is in violation of provisions in the Fair Debt Collection Practices Act — such as if they are harassing or threatening you — then you can file a complaint by contacting your local attorney general’s office, the Federal Trade Commission, or the Consumer Financial Protection Bureau.

When does the statute of limitations commence?

The clock starts ticking on the statute of limitations on the last date of activity on the account. This generally means your last payment on the account, but it also could be when you last used the account, entered into a payment agreement, or made a promise to make a payment.

After the statute of limitations has passed, how do I remove debt from my credit report?

Even if the statute of limitations has already passed, debt will remain on your credit report for seven years. At this point, it should automatically drop off your report. If, for some reason, it does not, then you can dispute the information with the credit bureau.

What state’s laws on statute of limitations apply if I incur credit card debt in one state, then move to another state?

If you’re unsure of what the statute of limitations on credit card debt is, the first thing to do is to check your credit card agreement. Which state you live in may not have an impact, as many credit card companies dictate in the credit card agreement which state court will preside.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This article is not intended to be legal advice. Please consult an attorney for advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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