Federal student loan interest rates are set by Congress. Each spring, they determine the next school year’s interest rates based on the high yield of the last 10-year Treasury note auction in May. The new rates apply to loans disbursed between July 1 and June 30 of the next year.
For private student loans, the lender determines the interest rate, and it may vary depending on which financial institution you’re working with as well as your own financial profile. Unlike federal loans, the decision to change rates on a private student loan rate can happen more than once a year. A private lender might change rates monthly, quarterly, or annually — it’s up to them to decide.
If you already hold student loans, then the rates of those loans may or may not change. It depends on whether you have a federal or private loan, and if that loan has a variable or fixed interest rate.
Learn more here about the federal student loan interest rate in 2023-24, what’s being proposed for the future, and options you have if your loan has a variable interest rate.
Key Points
• Federal student loan rates change yearly, based on May’s 10-year Treasury note auction, and apply to new loans disbursed July 1–June 30.
• Rates are fixed for federal loans, meaning once issued, the rate won’t change unless you refinance or consolidate.
• Private loan rates vary by lender, and may change monthly, quarterly, or annually — especially if they are variable-rate.
• Variable-rate loans may rise if market rates increase, making them riskier during periods of economic uncertainty.
• Refinancing can lock in a fixed rate, but refinancing federal loans removes access to federal protections and forgiveness programs.
Federal 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.
Your interest rate will also depend on the type of loan you take out. Direct Subsidized Loans and Direct Unsubsidized Loans tend to have the lowest rates, while Direct PLUS loans have the highest. Sometimes, Congress will lower interest rates, but they raised them in 2022 and 2023. We won’t know federal student loan interest rates for the 2024-25 school year until May 2024.
Each year, the new rates take effect on July 1 and apply to federal student loans taken out for the following academic year. The federal student loan interest rates rose from the 2017–2018 to the 2018–2019 school years, but decreased for the 2019–2020 and 2020-2021 school years. For the 2021-2022 and 2022-2023 school years, student loan interest rates increased again.
Note, though, that these changes only apply to new student loans. Once you’ve taken out a federal student loan, the rate of that loan will stay the same unless you pursue consolidation or refinancing.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
Student Loan Rates for the 2023–2024 School Year
So what will student loan interest rates be in 2023?
For the 2023-2024 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 5.50%, the rate on Direct Unsubsidized loans for graduate and professional students is 7.05%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 8.05%. The interest rates on federal student loans are fixed and are set annually by Congress.
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%. Since 2006, the highest interest rates reached for Direct Subsidized Loans and Subsidized Federal Stafford Loans was 6.8%.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
Private Student Loan Rates Can Change at Any Time
Private student loans are from banks, credit unions, and other financial institutions, and they get to set the interest rates on the loans they disburse. Some private loans have fixed rates, which means you lock in an interest rate and it doesn’t change for the life of the loan. Other private loans have variable rates, which means the interest rate might go up and down over the course of the loan.
As of July 2023, financial institutions use Secured Overnight Financing Rate (SOFR) to help with pricing corporate and consumer loans, including business loans, student loans, mortgages, and credit cards.
Private lenders can raise or lower interest rates at any time, but any changes usually have to do with changes in the economy, such as the Federal Reserve deciding to raise or cut interest rates.
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. But since you need to re-apply for federal aid every year you attend college, you may end up with four loans with four different interest rates.
When you apply for a private student loan or refinance an existing loan, borrowers can typically choose between a fixed and variable interest rate.
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 private loan has a variable rate, the rate may fluctuate as the economy changes. In the past year, the Federal Reserve has increased benchmark interest rates numerous times to try to help control inflation. Rates may rise again, but it’s impossible to say for certain.
Recommended: Student Loan Refinancing Guide
What to Do if You Have a Variable-Rate Loan
If your private student loan has a variable interest rate and you’re worried that interest rates might increase, you may have some options. Student loan refinancing involves taking out a new loan with a new interest rate. By refinancing, borrowers have the opportunity to make only one monthly payment instead of balancing multiple payments, and they may be able to lock in a fixed rate so they no longer have to be concerned with rate hikes.
Individuals whose financial situation has improved since originally borrowing their loan(s) may qualify for a lower interest rate.
The Takeaway
Should you refinance your student loans if you’re worried interest rates will change? If you have federal loans, you’ve already locked in a fixed interest rate so you don’t need to worry about interest rate changes. Plus, it’s important to remember that when federal student loans are refinanced, they are no longer eligible for federal borrower protections. But if you have a private loan with a variable interest rate, it may be worth exploring loan refinancing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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