New! Eligible SoFi members can invest in upcoming IPOs before they’re traded on the public market—only in the SoFi app.* Learn more

When Do Student Loan Rates Increase?

June 30, 2021 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

When Do Student Loan Rates Increase?

Student loan rate increases are a daunting possibility for students planning on borrowing federal student loans each year. But unfortunately, student loan interest increases can be par for the course.

Federal student loan interest rates for the 2021-2022 school year have increased slightly from the 2020-2021 rates. If you’re worried about an upcoming student loan rate increase, and wondering if the federal government might be raising student loan interest rates in the coming years, read on for more information.

There’s no way to know for sure what will happen with federal student loan interest rates in the long term, but it could help to know the landscape, understand how the rates have gone up in the past, and look at what’s being proposed for the future.

The more you know, the more prepared you can be if you need to borrow another student loan.

Student Loan Interest Rates Change Annually

Under a law adopted by Congress in 1993, the federal government pegged federal student loan interest rates to the longer-term US Treasury rates, and those interest rates are adjusted annually for new federal student loans.

Each year, the new rates take effect on July 1 and apply to federal student loans taken out for the following academic year. Rates have increased from the 2017–2018 to the 2018–2019 school years, but have decreased for 2019–2020 and the 2020-2021 school years.

Student Loan Rates for the 2021–2022 School Year

The interest rates on Direct Subsidized and Unsubsidized Student Loans for undergraduates are 3.73% for any new loans made on or after July 1, 2021, and before July 1, 2022.

Student loan interest rates also increased for Graduate or Professional Direct Unsubsidized Student Loans—up to 5.28% (up from 4.30%). Rates on Direct PLUS Loans, which are available to parents and graduate students, increased to 6.28% (up from 5.30%.

In an effort to keep the interest rates on federal student loans from skyrocketing, Congress has set limits on how high-interest rates can go. Undergraduate loans are capped at 8.25%, graduate loans can’t go higher than 9.5%, and the limit on parental loans is capped at 10.5%.

If Your Loan Has a Variable Interest Rate, a Hike Could Be in the Cards

If you take out a federal student loan, the loan’s interest rate is fixed. This means the interest rate stays the same over the life of the loan.

When applying for a private student loan or refinancing an existing loan, borrowers can typically choose between a fixed and variable interest rate. The interest rate on a variable loan could fluctuate depending on market volatility.

When you take out a private student loan, the original rate depends on your credit score, employment history, and current income level—among other factors, which vary by lender.

If your loan has a variable rate, the rate fluctuates as the economy changes. You might have mixed feelings when rates alter. Generally, rates tend to decrease when the economy takes a hit, and they tend to increase as the economy strengthens.

How do you know if a rate hike is in the cards? We can never be 100% sure, but it might help to look at trends in the market. You could consider looking at the London Interbank Offered Rate (LIBOR) , an interest rate index that is updated daily and shows how rates change along with the economy.

If you look at the LIBOR index in 2019, you can see that variable rates were steadily increasing from 2014 to January 2019, but for the most part, they’ve been decreasing ever since.

Tuition and Fees Are Not Tax Deductible

The 2018 Tax Cuts and Jobs Act did not include an extension of the Tuition and Fees Deduction. In the past, taxpayers could use this tax provision to reduce their taxable income by up to $4,000 annually. The IRS currently has no plans to make tuition and fees deductible again in the future.

The Student Loan Interest Deduction May Be Eliminated

The 2018 Tax Cuts and Jobs Act originally proposed eliminating the student loan interest deduction, which allows individuals to deduct up to $2,500 annually on the interest paid on a student loan. Ultimately, this deduction wasn’t eliminated and is still available, but it’s an issue to be aware of.

The Takeaway

One way to navigate these changes is to refinance your student loans with SoFi, allowing you to choose a monthly payment plan and loan term that works for you. Certain private lenders only refinance private student loans, but SoFi gives you the option to refinance both private and federal loans.

Refinancing student loans involves taking out a brand new loan with a new interest rate. By refinancing, borrowers have the opportunity to make only one monthly payment instead of balancing multiple payments.

Individuals whose financial situation has improved since originally borrowing the loan(s) may qualify for a lower interest rate.

Those currently enrolled in an income-driven repayment plan or who are working toward loan forgiveness for federal loans, may find that refinancing is not the best option.

When federal student loans are refinanced, they are no longer eligible for federal borrower protections.

But someone worried about rising variable rates on private student loans may be able to lock in a competitive interest rate by refinancing.

When you refinance with SoFi, there are no origination fees or prepayment penalties. Take a look at SoFi’s student loan refinancing calculator to get an idea of what a new loan could look like for you.

If you’re looking to potentially get a better term or a lower interest rate, consider refinancing with SoFi. You can check your rate in under two minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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.
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.
SOSL18110

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender