Student loan interest rates have been on the rise over the past five years. In July 2024, federal student loan interest rates rose to their highest level in 16 years and rates for graduate loans reached record highs. Rates dipped only slightly in July 2025.
Why are student loan interest rates so high? Some of it comes down to perception: Interest rates are up after a decade of historical lows. But other factors also come into play.
Read on to learn how federal and private student loan interest rates are set, why interest rates have gone up, and the different options available for managing high-interest student loans.
Table of Contents
- Understanding Student Loans
- How Are Student Loan Interest Rates Determined?
- Factors Contributing to High Interest Rates
- Federal vs. Private Student Loan Interest Rates
- Interest Rates for Graduate and Professional Degrees
- How Credit Scores Impact Private Student Loan Rates
- Strategies to Pay Off Student Loans Faster
- FAQ
Key Points
• Federal student loan interest rates have risen over the last five years; in 2024, some rates for graduate loans reached record highs.
• Interest rates on federal student loans are set annually by Congress, influenced by the 10-year Treasury note rate plus a fixed increase. Rates are capped at specific limits.
• Private lenders determine interest rates on private student loans, using benchmarks such as the prime rate. Borrowers’ credit scores and credit history also impact private loan rates.
• Students who don’t have a strong credit history may need a cosigner on a private student loan to qualify for more favorable rates.
• Methods to help pay off student loans include paying any accruing interest while in school, using an income-driven repayment plan after graduation, and refinancing student loans.
Understanding Student Loans
There are two main types of student loans — federal and private student loans. Federal loans are offered by the Education Department (ED) and they include Direct Subsidized and Unsubsidized student loans for undergraduate students, and Direct Unsubsidized loans and Direct PLUS loans for graduate or professional students.
• Direct Subsidized loans are for undergraduates who have financial need. You fill out the Free Application for Student Aid (FAFSA®), and your school determines how much you can borrow. The interest on the loan is paid by the ED while you’re in school and during a six-month grace period after graduation.
• Direct Unsubsidized loans are available for undergrads and graduate students. A borrower does not have to prove financial need for these loans. Again, your school determines the amount you can borrow. However, unlike Direct Subsidized loans, the interest on Direct Unsubsidized loans is not paid by the ED and it begins to accrue as soon as the loan is disbursed.
• Direct PLUS loans are for eligible parents (typically called a parent PLUS loan) and grad students. To be approved for one of these loans, a borrower must undergo a credit check and cannot have an adverse credit history. Interest accrues on Direct PLUS loans while the student is in school.
Here’s a look at how the interest rates on these federal loans have increased over the last five years:
| School Year 2021 – 2022 | School Year 2022 – 2023 | School Year 2023 – 2024 | School Year 2024 – 2025 | School Year 2025 – 2026 | |
|---|---|---|---|---|---|
| Direct Subsidized and Unsubsidized Loans for Undergrads | 3.73% | 4.99% | 5.50% | 6.53% | 6.39% |
| Direct Unsubsidized Loans for Graduate or Professional Students | 5.28% | 6.54% | 7.05% | 8.08% | 7.94% |
| Direct PLUS Loans for Graduate or Professional Students or Parents of Undergrads | 6.28% | 7.54% | 8.05% | 9.08% | 8.94% |
There are currently several different repayment plans for federal student loans, including the standard 10-year plan; graduated repayment in which your monthly payments gradually increase over 10 years; extended payment, which gives you up to 25 years to repay your loans; and income-driven repayment plans that base your monthly payments on your income and family size.
However, starting July 1, 2026, there will be only two repayment plans available to new borrowers: a revised 10-year standard plan and a new income-driven option, the Repayment Assistance Plan (RAP).
Private student loans are issued by private lenders, such as banks, credit unions, and online lenders. Their interest rates and loan terms differ from lender to lender. The interest rates on private student loans may be fixed or variable, and the rate you get depends on your credit history.
You can consider student loan refinancing later on for potentially better interest rates and terms on your private loans, if you’re eligible. (Federal loans can be refinanced as well, but they then become private loans and lose access to the federal benefits mentioned above.)
By using a student loan refinance calculator, you can check the interest rate and repayment terms you may qualify for — and find out if refinancing makes sense for your situation.
Take control of your student loans.
Ditch student loan debt for good.
How Are Student Loan Interest Rates Determined?
The federal government adjusts federal student loan rates every year based on 10-year Treasury notes, plus a fixed increase. Rates are also capped, so they can’t rise above a certain limit. Here are the formulas:
• Direct Unsubsidized Loans for Undergraduates: 10-year Treasury + 2.05%, capped at 8.25%
• Direct Unsubsidized Loans for Graduates: 10-year Treasury + 3.60%, capped at 9.50%
• PLUS Loans to Graduate Students and Parents: 10-year Treasury + 4.60% Capped 10.50%
Private student loan interest rates are based on the credit rating of the borrower (or their student loan cosigner, if they have one), and they are also influenced by market conditions.
Factors Contributing to High Interest Rates
As mentioned, federal student loan rates are based each year on 10-year Treasury notes plus a fixed increase. The rates for Treasury notes are set based partly on global market conditions and the state of the economy. When market conditions are in flux, the rates for Treasury notes tend to rise.
Federal student loan interest rates are fixed over the life of the loan. That means if you get a federal student loan for your freshman year, the rate it was issued with won’t change — despite Congress setting a new rate every year. If you need to take out another federal student loan for your sophomore year, however, you’ll then get the new rate, not the previous one.
Private student loan rates vary by lender and fluctuate with market trends. A borrower’s credit history also determines the rate they get for a private student loan.
Another factor contributing to student loan interest rates is that student loans are unsecured. Unsecured loans are not tied to an asset that can serve as collateral. Secured loans, by comparison, are backed by something of value, such as a car or house, which can be seized if you default. But lenders can’t seize a degree. So student loan interest rates may be higher than secured loan rates because the lender’s risk is higher.
Federal vs. Private Student Loan Interest Rates
When looking at why student loan interest rates are so high, it’s important to understand that private student loan rates will fluctuate with market trends and from lender to lender. They also depend on a borrower’s credit score. As of April 2026, some private student loan rates start at about 3% and go up to around 15.99%.
Private student loan rates for 10-year loans may be higher than the federal interest rate when borrowers are comparing rates concurrently on offer. The rates may 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 refinancing rates that are currently on offer may be lower than the federal interest rate a borrower received at the time of getting their loan, depending on what year they took out the loan. Borrowers interested in private or refinance loans can shop around with private lenders for the best interest rates.
Pros and Cons of Federal and Private Student Loans
Both federal and private student loans have advantages and drawbacks.
Pros of federal student loans include:
• Interest rates for federal loans are fixed over the life of the loan
• The rates for federal loans may be lower than the rates borrowers might get for private student loans
• Depending on the type of federal loan you have, the government may pay your interest while you are in school and during the six-month grace period after graduation
• Federal loans have federal programs and protections such as income-driven repayment plans and federal deferment options
Cons of federal student loans include:
• You can’t shop around for interest rates
• If you take out a new loan in subsequent years, you may get a higher rate than you got with your initial loans
• Borrowing limits may be lower compared to private student loans
Pros of private student loans include:
• Borrowers can shop around with different private lenders for lower rates
• Borrowers (or cosigners) with very good or excellent credit can typically get lower interest rates
• May offer higher borrowing limits than federal loans, depending on what a borrower is eligible for
Cons of private student loans include:
• Borrowers with poor credit will get higher interest rates or may not be able to qualify for a loan
• If the loan has a variable interest rate, it may rise over time
• Private loan student holders don’t have access to the same federal programs and protections that federal student loan borrowers do
• Deferment and forbearance options (if any) depend on the lender
Recommended: Average Interest Rate for Student Loans
Interest Rates for Graduate and Professional Degrees
For graduate students and those pursuing advanced professional degrees, interest rates on federal Direct PLUS loans and Direct Unsubsidized Loans for graduate and professional students are substantially higher than the interest rate for Direct Subsidized and Unsubsidized loans for undergrads.
For the 2025-2026 school year, the interest rates are:
Direct PLUS loan: 8.94%
Direct Unsubsidized loans for graduate and professional students: 7.94%
Direct Subsidized and Unsubsidized loans for undergraduate students: 6.39%
The higher rates on loans for graduate and professional students add significantly to the cost of borrowing. Not only that, the interest on these loans begins accruing immediately and while the borrower is in school, which also adds to the overall amount they’ll need to repay.
It’s worth noting that loans for graduate students currently have much higher borrowing limits than federal loans for undergrads. Graduate students can usually borrow up to $20,500 each year, with a lifetime cap of $138,500. Undergrad borrowers can typically borrow $5,500 for the first year, $6,500 for the second year, and $7,500 for the next two years, up to a total of $31,000. However, starting on July 1, 2026, lifetime borrowing limits for graduate students will be reduced to a lifetime cap of $100,000.
How Credit Scores Impact Private Student Loan Rates
Private lenders will look at a borrower’s creditworthiness when determining their interest rate. This involves considering such factors as:
• Credit score: Lenders have different requirements when it comes to credit scores for private student loans, but many look for a score of at least 650. As a student, you may not have that high a score, and in that case, you may need a cosigner on the loan in order to be approved.
• 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.
• A 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, as previously mentioned. A student loan 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.
Managing student loans responsibly is one potential way for students to establish credit. Additionally, they might consider getting a credit card with a lower line of credit and using it to cover a few small expenses such as groceries and transportation. Actions like paying their bill on time each month and in full may help them build credit over time.
Strategies to Pay Off Student Loans Faster
Whether you’re still in school or you’ve just graduated, there are steps that may save you money. But it’s important to be proactive. Here are some potential actions you could take.
If You’re Still in College or Grad School
Borrowers with Direct Unsubsidized loans are responsible for the interest that accrues while they’re in school and immediately after. They don’t have to make payments while enrolled, but not making payments means that, in certain situations, interest may “capitalize” — that is, the interest will be added to the principal and a borrower will pay interest on the new higher amount. In other words, they would be paying interest on the interest.
To save yourself money on interest, consider making interest-only payments during school until your full repayment period begins after graduation. It will take a small bite out of your budget now, but it can save you money in the long run.
If you have Direct Subsidized loans, no interest will accrue until your grace period ends.
If You Graduated
Borrowers are automatically placed on the standard repayment plan, unless they select another option. The standard repayment plan currently spreads repayment over 10 years. Starting on July 1, 2026, there will be a revised standard plan that features longer repayment terms of 10, 15, 20, or 25 years based on a borrower’s total loan balance.
With an income-driven repayment (IDR) plan, your monthly student loan payments are currently based on your discretionary income and family size. Your monthly payments are typically a percentage of your discretionary income, which usually means you’ll have lower payments. At the end of the repayment period, which is 20 or 25 years on one of the current IDR plans, your remaining loan balance is forgiven.
On the RAP plan launching on July 1, 2026, payment is based on 1% to 10% of a borrower’s adjusted gross income (AGI) and the forgiveness timeline is 30 years.
Federal Student Loan Forgiveness
You could also explore student loan forgiveness through a state or federal program.
For example, borrowers with federal student loans who work in public service may be eligible for the Public Service Loan Forgiveness (PSLF) program. If you work for a qualifying employer such as a not-for-profit organization or the government, PSLF may forgive the remaining balance on your eligible Direct loans after 120 qualifying payments are made under a qualifying IDR plan or the standard 10 year repayment plan.
In addition, check with your state to find out what loan forgiveness programs they may offer.
Refinancing Student Loans
For borrowers dealing with high-interest student loan debt that doesn’t qualify for federal protections, exploring refinancing is an option they may want to consider. With refinancing, a borrower can potentially lower their interest rate or their monthly payments.
A borrower considering refinancing to save money, could be a strong candidate if they’ve strengthened their credit since they first took out their loans. Unlike when they first headed to college, they may now have a credit history for lenders to take into account. If they’ve never missed a payment and have continually built their credit, they might qualify for a lower interest rate.
Having a stable income can also help. Being able to show a consistent salary to a private lender may help make a borrower less of a risk, which in turn could also help them secure a more competitive interest rate.
Just remember that refinancing federal student loans makes them ineligible for federal programs and protections.
The Takeaway
Student loan interest rates have been on the rise in recent years, but there are ways to help manage the cost of student loan debt. Using an income-driven repayment plan, making interest-only payments on loans while in school, and refinancing high-interest private student loans, are options that may help some borrowers lower their payments and potentially pay off their student loans faster.
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.
FAQ
Why are student loan interest rates so high right now?
Interest rates set by the Federal Reserve have been higher in recent years to help fight inflation, and that in turn can cause student loan interest rates to go up. The reason: The rate set by the Fed is the benchmark rate used to set the interest rate for loans, including student loans. When the benchmark rate is higher, student loan interest rates can be higher as well.
How are federal student loan interest rates set?
Federal student loan interest rates are set by the federal government each year. The interest rates are based on 10-year Treasury notes, plus a set increase added by law. The rates on federal loans are capped, so they can’t rise above a certain limit. The interest rate remains fixed for the life of the loan.
Do private student loan interest rates change over time?
Private student loans with variable interest rates can change over time, depending on market conditions. The interest rate on variable loans may change monthly or quarterly, for instance, based on market trends.
With fixed-rate private student loans, the interest rate remains the same. However, you may be able to get a lower rate through refinancing if your credit is strong enough for you to qualify for a lower rate.
Can you lower your student loan interest rate?
It may be possible to lower your student loan interest rate through student loan refinancing. With refinancing, you exchange your current loan for a new loan from a private lender. Ideally, the new loan will have a lower interest rate if you qualify. You’ll typically need a strong credit history to get a lower rate. Just be aware that refinancing federal student loans makes them ineligible for federal benefits like forgiveness and income-driven repayment.
Is refinancing a good way to reduce student loan interest rates?
Refinancing may be a good way to reduce student loan interest rates if the interest rates on your current student loans are high, your loans are private student loans and don’t qualify for federal benefits, and your credit is strong. Refinance lenders tend to give lower rates to borrowers with a strong credit history.
SoFi Student Loan Refinance
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Not all repayment options may be available for all loans. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is current as of 3/2/2026 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).
SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY 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).
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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 .
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.
SOSLR-Q226-009