What Is the Federal Student Loan Interest Rate?

The federal student loan interest rate is the rate charged on Direct Subsidized Loans and Direct Unsubsidized Loans.

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Federal Student Loan Interest Rates

The federal student loan interest rate for undergraduates is 4.45%. This interest rate applies to Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans for the 2017-18 school year. The federal student loan interest rate for graduate or professional students is 6%. This interest rate applies to Direct Unsubsidized Loans and Direct PLUS Loans for the 2017-18 school year.

Federal student loan interest rates for new loans taken out on or after July 1, 2019 and before July 1, 2020

The interest rate for federal student loans disbursed between July 1, 2019 and July 1, 2020 is 4.53%. This is a decrease from the previous year, when the interest rate was 5.05%.

Federal student loan interest rates are fixed for the life of the loan, which means that your monthly payments will never go up or down based on changes in the market. This can give you some peace of mind if you’re worried about rising interest rates in the future.

The only way to get a lower interest rate on your federal student loans is to refinance them with a private lender. This can be a good option if you have good credit and you think you can get a lower rate than what you’re currently paying.

If you’re not sure whether refinancing is right for you, make sure to do your research and compare rates from multiple lenders before making a decision.

Federal student loan interest rates for new loans taken out on or after July 1, 2020 and before July 1, 2021

Federal student loan interest rates are set by Congress and announced each spring for new loans first disbursed the following July 1.

For new federal student loans made on or after July 1, 2020, and before July 1, 2021, the interest rates will be:

-2.75% for Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduate students
-4.30% for Direct Unsubsidized Loans for graduate or professional students
-3.84% for Direct PLUS Loans for parents and graduate or professional students

How Federal Student Loan Interest Rates Are Determined

The interest rate for federal student loans is not set by the government; it is determined by the lender. The interest rate is the cost of borrowing money and is expressed as a percentage of the total loan amount. The interest rate is set by the lender at the time of loan disbursement and can change during the life of the loan.

The 10-year Treasury note rate

The 10-year Treasury note rate is the benchmark that federal student loan rates are based on. It’s what we refer to as the “wells fargo rate.” The 10-year Treasury note rate is currently at 2.625%.

The wells fargo rate is the average yield of all outstanding Treasury notes that have a maturity of 10 years. The wells fargo rate doesn’t have anything to do with the federal student loan interest rates, but it’s used as a benchmark because it’s a good indication of how interest rates in general are trending.

If the 10-year Treasury note yield goes up, it’s likely that federal student loan interest rates will go up as well. If the 10-year Treasury note yield goes down, it’s likely that federal student loan interest rates will go down as well.

The one-month London Interbank Offered Rate (LIBOR)

The one-month London Interbank Offered Rate (LIBOR) is the interest rate at which banks offer to lend money to one another in the wholesale money markets in London. The LIBOR is fixed on a daily basis by the British Bankers’ Association. The interest rates at which banks lend money to one another reflect the cost of borrowing money in the international interbank market.

The rate for the preceding year

The rate for the new academic year is generally set in late spring and announced in July. The rates for federal student loans first disbursed on or after July 1, 2019, and before July 1, 2020, are:

-Undergraduate Direct Subsidized and Unsubsidized Loans: 4.53%
-Graduate Direct Unsubsidized Loans: 6.08%
-Parent PLUS Loans: 7.08%

The interest rate for federal student loans is determined by legislation, and it is reset every year on July 1. The interest rate is a weighted average of rates on 10-year Treasury notes, plus a fixed rate that varies depending on the type of loan. For example, the current interest rate for undergraduate Direct Subsidized Loans and Direct Unsubsidized Loans is 4.53%, which is the weighted average of rates on 10-year Treasury notes plus a fixed rate of 2.05%.

For graduate students, the current interest rate for Direct Unsubsidized Loans is 6.08%, which is the weighted average of rates on 10-year Treasury notes plus a fixed rate of 3.6%. For Parent PLUS Loans, the current interest rate is 7.08%, which is the weighted average of rates on 10-year Treasury notes plus a fixed rate of 4.6%.

The interest rate for federal student loans first disbursed on or after July 1, 2019, and before July 1, 2020, are as follows:

-Undergraduate Direct Subsidized and Unsubsidized Loans: 4.53%
-Graduate Direct Unsubsidized Loans: 6.08%
-Parent PLUS Loans: 7.08%

What Determines the Interest Rate for a Federal Student Loan?

The interest rate for a federal student loan is set by Congress and can change each year. The current interest rate for federal student loans is 4.53%. The interest rate for private student loans varies depending on the lender, but is typically higher than the interest rate for federal student loans.

The type of federal student loan

The type of federal student loan you have (Direct Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, or Direct Consolidation Loan) will determine the amount of interest you pay.

Current interest rates for federal student loans:
-Direct Subsidized Loans and Direct Unsubsidized Loans: 5.05%
-Direct PLUS Loans for Parents and Graduates: 7.60%
-Direct Consolidation Loans: The weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%.

The first disbursement date of the loan

The interest rate for Federal Direct Stafford Loans first disbursed on or after July 1, 2020, and before July 1, 2021, is 2.75%.

The interest rate for Federal Direct Unsubsidized Stafford Loans first disbursed on or after July 1, 2020, and before July 1, 2021, is 2.75%.

The interest rate for Federal Direct PLUS Loans first disbursed on or after July 1, 2020, and before July 1, 2021, is 4.30%.

How to Repay Your Federal Student Loans

The interest rate for federal student loans first disbursed between July 1, 2020, and June 30, 2021, is 2.75% for undergraduate loans, 4.30% for graduate loans, and 6.84% for PLUS loans. These rates are fixed for the life of the loan. You’ll have the same interest rate for the entire repayment period, even if rates go up or down in the future.

Standard repayment plan

The standard repayment plan is the default repayment option for federal student loans. Under this plan, you’ll pay a fixed amount each month for up to 10 years. The main advantage of the standard repayment plan is that you’ll pay off your loans faster than you would under other plans, which means you’ll pay less in interest over the life of the loan.

Graduated repayment plan

The graduated repayment plan is best for borrowers who expect their incomes to increase steadily over time. With this plan, your payments start out low and increase every two years. The length of your repayment period can range from 10 to 30 years, depending on the loan amount and your other financial circumstances.

Extended repayment plan

The federal government offers an extended repayment plan for borrowers with more than $30,000 in federal student loans. Under this plan, your monthly payment is calculated using a 25-year repayment term.

Eligible loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans for graduate or professional students, and PLUS Loans received as the parent of a dependent undergraduate student.

To qualify for this plan, you must first consolidate your loans into a Direct Consolidation Loan. You can apply for consolidation at StudentLoans.gov.

Income-driven repayment plans

Income-driven repayment plans are available to federal student loan borrowers. These plans can help make your monthly student loan payments more affordable based on your income and family size.

There are four primary income-driven repayment plans available, each with its own eligibility requirements, monthly payment amount calculation, and repayment term length:
-Revised Pay As You Earn Repayment Plan (REPAYE Plan)
-Pay As You Earn Repayment Plan (PAYE Plan)
-Income-Based Repayment Plan (IBR Plan)
-Income-Contingent Repayment Plan (ICR Plan)