Federal student loan interest rates have increased for the 2024-25 academic year
Senior Associate, JPMorgan Chase
New federal student loan borrowers should take note — the U.S. Department of Education has released the federal student loan interest rates for the 2024-25 academic year and interest rates for borrowers are changing.
Student loan interest rates for new undergraduate borrowers will be the highest they’ve been in 12-years. Meanwhile, interest rates for graduate student loans, and Direct PLUS Loans for graduate and professional students and parent borrowers, will be the highest they've been in more than 20 years.
So, what does this mean for you if you’re a college or graduate school student? Keep reading for more information.
What are the interest rates for federal student loans for the 2024-25 academic year?
Subsidized and Unsubsidized Loans for eligible undergraduate students
2024-25 interest rate: 6.53%
2023-24 interest rate: 5.50%
As a refresher, Direct Subsidized Loans are available to eligible currently enrolled undergraduate students (not graduate students) with demonstrated financial need. Your college or university determines the amount you’re offered based on your financial need. What makes these loans unique is that the U.S. Department of Education pays the interest on the loan while you’re in school at least half-time and for the first six months after you leave school.
Direct Unsubsidized Loans, meanwhile, don’t require demonstrated financial need. Schools may award you this loan based on its cost of attendance while factoring in the other financial aid you may receive.
Unsubsidized Loans for eligible graduate students
2024-25 interest rate: 8.08%
2023-24 interest rate: 7.05%
As a refresher, while graduate students aren’t eligible for Direct Subsidized Loans, they’re eligible for Unsubsidized Loans. Although undergraduate students may be eligible for Unsubsidized Loans, these loans have a different interest rate for graduate students.
Direct PLUS Loans for eligible graduate and professional students and parents of undergraduate students
2024-25 interest rate: 9.08%
2023-24 interest rate: 8.05%
These loans are for eligible graduate and professional students and parents of dependent undergraduate students. Interest accrues on these loans regardless of the loan status, even when you’re not required to start making payments.
How does federal student loan interest work?
By filing the Free Application for Federal Student Aid (FAFSA®), you may be eligible for loans provided by the U.S. Department of Education to help finance your education. This is money that will need to be repaid in most cases, and you’ll often owe interest on the amount you borrow.
The interest rate on the loan is a percentage of your principal balance, and it’s added to the amount owed on an annual basis. A higher interest rate on a loan means that a loan will be more expensive because, as a borrower, you’ll have to pay more in interest.
How are federal student loan interest rates decided?
Federal student loan interest rates are determined by Congress and tied to the 10-year U.S. Treasury note yield. The calculation to determine the interest rate is based on a formula that adds a fixed percentage (which varies depending on the type of loan) to the high yield of the 10-year U.S. Treasury note in May each year. By tying student loan interest rates to the yields on U.S. Treasury notes, the rates are meant to reflect broader economic conditions, aligning the cost of borrowing with the U.S. government’s own borrowing costs.
While a federal student loan borrower will have the same rate for the duration of their loan once they’ve borrowed, student loan interest rates may change for new loans each academic year.
It's important to note that private student loan interest rates are determined by individual lenders, and, therefore, are typically different.
Will federal student loan interest rates decrease next year?
It’s hard to predict if student loan interest rates will increase or decrease for the 2025-26 academic year. The interest rates for federal student loans will largely depend on the high yield of the 10-year U.S. Treasury note in May 2025.
Final thoughts
If you intend to take out student loans to help pay for college or graduate school, it can be important to inform yourself on the basics of the loans, including interest rates and their impact on your education costs. StudentAid.gov's loan simulator calculators may be helpful tools for determining the impact of borrowing federal student loans.