Inflation indirectly causes student loan interest rates to rise. That’s because the government tends to increase interest rates to combat rising prices, which typically raises the cost of borrowing.
Student loan interest rates did in fact rise when the Federal Reserve began raising interest rates to combat inflation during the Covid-19 economic recovery. The fixed interest rate on newly disbursed federal student loans for undergraduates went from 2.75% in July 2020 to 6.93% for the 2025-26 academic year.
The fixed interest rate on newly disbursed federal student loans is largely determined by the high yield of the final 10-year Treasury note auction held each year in May. Bond yields are typically higher when interest rates go up.
High inflation is bad news for people seeking new student loans and those with variable interest rate loans, though people with fixed-rate loans won’t see their rates go up.
Key Points
• Inflation can indirectly cause student loan interest rates by raising the cost of goods and services, which can cause interest rates on loans to rise.
• The federal government sets the rates on federal student loans, and private lenders set the rates on private student loans.
• Federal student loans maintain fixed interest rates over the life of the loan, unaffected by inflation changes.
• Student loans with variable interest rates may fluctuate with changes in the market, including inflation.
• Refinancing student loans at a lower rate can reduce borrowing costs and monthly payments.
What Exactly Is Inflation?
Inflation — the rising cost of everyday items — is an important economic factor to everyone from investors to policymakers to borrowers. The reason it matters to borrowers is that inflation can lead to higher interest rates on every kind of debt, including student loans.
Put simply, inflation means that the price of bread will be higher tomorrow than it is today and that here is Consumer Price Index (CPI) growth. So lenders may increase their interest rates during times of high inflation, given that borrowers will be paying the money back when those dollars will buy less. That’s one reason inflation and many interest rates have typically risen or fallen in step with each other.
The Federal Reserve is another reason. The country’s central bank plays a major role in managing the economy, especially with factors like interest rates and inflation.
The Fed began its rate-hiking campaign in March 2022 to combat high inflation and continued raising rates into 2023. Increases to the federal funds rate have prompted commercial banks to raise the price of consumer loans and other financial products, including private student loans. In 2024, as inflation cooled, the Fed began lowering rates.
What Does Inflation Mean for Student Loans?
To someone with student loan debt, inflation may not always be bad news. That’s because price inflation may influence wage inflation.
Inflation typically drives up the price of everything, including wages. As a result, some borrowers are paying back certain fixed-rate loans, for example, with dollars that have less value than the ones they borrowed.
There are exceptions. If a borrower took out a variable rate private student loan, it’s likely that inflation will lead to higher interest rates, which will translate into higher interest rates that the borrower has to pay. But if the borrower has a fixed-rate private student loan and their salary keeps up with the pace of inflation, then inflation can be helpful.
With the Federal Reserve holding steady on interest rates as of June 2025 to help keep inflation down, but the possibility that there may be a rate change later in the year, it’s worth checking to see whether your private student loan has a fixed or variable rate.
As a quick primer, fixed-rate loans have the same interest rate from when borrowers take out the loan to when they pay it off. Variable-rate loans change the interest they charge, which is influenced by Federal Reserve rate changes.
All federal student loans disbursed since July 2006 have fixed interest rates. Meanwhile, banks and other private lenders may offer fixed-rate and variable-rate private student loans.
When Does Refinancing Make Sense?
Student loan refinancing may be right for you if you qualify for a lower interest rate. The first step is to check the interest rates on your existing student loans against the rates offered by other lenders. If they offer a better rate, then it may be possible to pay off that student loan debt faster or reduce your monthly payments with refinancing.
A student loan refinancing calculator may come in handy as you weigh your options.
Some lenders refinance both federal student loans and private student loans. However, if you choose to refinance federal student loans with a private lender, you will give up federal benefits and protections like federal income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF).
If you qualify for a lower interest rate, student loan refinancing may reduce your borrowing costs. Refinancing for a longer term, however, may increase your total interest costs.
The Takeaway
Borrowers with variable-rate student loans may see their borrowing costs go up during times of rising inflation. Whether your student loans have a fixed or variable interest rate, the impact of consumer price inflation across the economy may impact your ability to make ends meet.
If you find student loan refinancing is right for you, SoFi can help. SoFi refinances federal student loans, parent PLUS loans, and private student loans with no origination or prepayment fees.
FAQ
How does inflation affect student loans?
Inflation affects student loans because the government typically raises interest rates in an attempt to help tame rising inflation. That, in turn, raises the cost of borrowing money — including for student loans. The interest rate on federal student loans has climbed from 3.73% in 2021 to 6.93% for the 2025-26 academic year.
How does inflation affect interest rates on loans?
When inflation rises, the cost of goods and services rises as well. Because borrowers are then repaying their loans with dollars that buy less, lenders may increase their interest rates on loans. In addition, the Federal Reserve typically raises the federal funds rate to help tame rising inflation, which can lead to an increase in interest rates for loans.
Why is my student loan interest rate going up?
Federal student loan interest rates are determined by federal law. On July 1 each year, the fixed interest rate for each type of loan resets. The interest rate is determined based on the high yield of 10-year Treasury notes plus a fixed interest rate increase. The interest rate on federal student loans are fixed, so they will remain the same over the life of your loan.
With private student loans, lenders set the interest rates and they may raise them if inflation is rising. Lenders typically offer a range of rates, and the rate a borrower gets generally depends on their credit history.
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