Key Takeaways
- Federal student loan rates are fixed by law and range from roughly 5% to 8% depending on loan type and borrowing year, and do not change over the life of the loan.
- Private student loan rates vary by lender and your credit profile, typically ranging from 3% to 14%, and may be fixed or variable.
- Forgiveness programs like Public Service Loan Forgiveness and income-driven repayment plans reduce what you owe but do not lower your interest rate.
- Interest accrues daily on unsubsidized loans even while you are in school, but does not accrue on subsidized federal loans during deferment or forbearance.
- Your monthly payment under income-driven plans is calculated on your discretionary income, not your interest rate, so a lower rate does not mean a lower payment.
Federal Student Loan Interest Rates by Loan Type
Federal student loans issued after July 1, 2023, carry a fixed interest rate of 8.05% for undergraduate Direct Loans and 10.45% for graduate Direct Loans and Direct PLUS loans. Loans issued in earlier years have different rates — for example, loans issued between July 2022 and June 2023 were 5.50% for undergraduates and 7.05% for graduate borrowers. The Department of Education sets these rates annually based on the 10-year Treasury note plus a fixed percentage added by Congress.
The rate you received when you borrowed is locked in for the life of that loan. If you took out loans in multiple years, each loan carries the rate from the year it was issued. You can see the exact rate on each of your loans by logging into your Federal Student Aid account or checking your loan servicer's website. The rate does not change if you consolidate your loans into a Direct Consolidation Loan, though the new consolidated loan will have a weighted average of your existing rates, rounded up to the nearest one-eighth of a percent.
Subsidized federal loans do not accrue interest while you are in school at least half-time, during the six-month grace period after graduation, or during deferment. Unsubsidized loans accrue interest during all of these periods. If you do not pay the accrued interest, it capitalizes — meaning it gets added to your principal balance — and you then pay interest on the interest.
Private Student Loan Interest Rates
Private student loan rates are set by individual lenders and depend on your credit score, income, employment history, and the loan term. Rates typically range from 3% to 14%, though some lenders offer rates outside this range. Unlike federal loans, private rates can be fixed or variable. A variable rate may start lower but can increase over time if the underlying index (usually the prime rate) rises.
Private lenders do not offer the same protections as federal loans — there is no grace period, no income-driven repayment option, and no forgiveness program. Interest accrues from the moment the loan is disbursed. If you are still in school, some lenders allow you to defer payments, but interest continues to accrue and will capitalize when repayment begins.
How Forgiveness Programs Affect Your Interest Rate
Forgiveness programs reduce the total amount you owe, but they do not lower your interest rate. Public Service Loan Forgiveness, income-driven repayment forgiveness, and teacher loan forgiveness all work the same way: after you meet the program's requirements, any remaining balance is forgiven. The interest rate on your loans stays the same throughout the process.
Under income-driven repayment plans, your monthly payment is calculated based on your discretionary income — usually your adjusted gross income minus 150% of the federal poverty line for your family size. The interest rate does not factor into this calculation. If your payment is lower than the interest accruing each month, unpaid interest capitalizes, which increases your principal balance. This can happen even though you are making on-time payments.
If you are pursuing forgiveness, understanding how interest capitalizes matters more than the interest rate itself. On an income-driven plan, you may pay less each month but owe more at the end because of capitalization. The forgiveness program will cover whatever balance remains, but you should know that you may pay more total interest over time than you would under a standard 10-year repayment plan.
Interest Capitalization and How It Increases What You Owe
Capitalization happens when unpaid interest is added to your principal balance. Once interest is capitalized, you pay interest on that interest. This occurs automatically in several situations: when you exit deferment or forbearance on an unsubsidized loan, when you consolidate loans, or when your income-driven payment does not cover the monthly interest.
For example, if you have a $30,000 unsubsidized loan at 8.05% and you are in school for four years without making payments, roughly $10,000 in interest will accrue. When you graduate and enter repayment, that $10,000 capitalizes, and your new balance is $40,000. You now pay interest on $40,000 instead of $30,000.
On an income-driven plan, if your payment is $150 per month but $200 in interest accrues each month, the $50 difference capitalizes. This happens every month you are on the plan. Over 20 or 25 years, this can add tens of thousands of dollars to your balance. The forgiveness program will cover it, but you should understand that capitalization is a real cost of income-driven repayment, even though the interest rate itself does not change.
How to Find Your Loan's Current Interest Rate
Log into your Federal Student Aid account at studentaid.gov using your FSA ID. Under "My Loans," you will see each loan listed separately with its interest rate, current balance, and loan type. If you cannot access studentaid.gov, contact your loan servicer directly — the servicer's name and phone number appear on your monthly statement or billing notice.
For private loans, log into your lender's website or app, or call the customer service number on your promissory note or billing statement. Private lenders do not report to a central database, so you must check with each lender individually.
If you have consolidated your federal loans, the consolidated loan's rate is the weighted average of all the loans you consolidated, rounded up. This rate is fixed for the life of the consolidated loan and does not change if rates drop in the future.
Interest Rate vs. Monthly Payment: Why the Difference Matters
Your interest rate and your monthly payment are not the same thing. A lower interest rate reduces how much interest you pay over time, but it does not automatically lower your monthly payment. On a standard 10-year repayment plan, a lower rate does mean a lower monthly payment. But on an income-driven plan, your payment is based on your income, not your rate.
This distinction matters for forgiveness. If you are on an income-driven plan aiming for forgiveness, a lower interest rate is helpful because it slows capitalization, but it does not reduce your monthly payment. You still pay based on your income. A higher interest rate means more capitalization and a larger balance at forgiveness, but your monthly payment stays the same.
If you are not pursuing forgiveness and plan to repay your loans in full, a lower interest rate saves you money. In that case, refinancing to a lower rate (if you may have access to) or choosing a shorter repayment term can reduce both your interest and your total cost.
Frequently Asked Questions
Can I get a lower interest rate on my federal student loans?
No. Federal student loan rates are set by Congress and are the same for all borrowers with the same loan type and borrowing year. You cannot negotiate or change your rate. You can refinance with a private lender, but that means losing federal protections like income-driven repayment and forgiveness programs.
Does consolidating my loans lower my interest rate?
No. A Direct Consolidation Loan has a fixed rate equal to the weighted average of your existing loans, rounded up to the nearest one-eighth of a percent. You may pay a slightly higher rate than your lowest loan, but consolidation can simplify your payments by combining multiple loans into one.
If I'm on an income-driven plan, will my interest rate change?
Your interest rate stays the same throughout your income-driven plan. Your payment amount may change each year if your income changes, but the rate on each loan does not. Interest continues to accrue and may capitalize if your payment does not cover it.
What happens to interest when my loans are forgiven?
Any accrued and unpaid interest is forgiven along with your principal balance. You do not owe it. However, the interest that accrues while you are on the repayment plan counts toward your taxable income in the year of forgiveness, which may result in a tax bill.
Should I pay extra toward loans with higher interest rates?
If you are pursuing forgiveness, paying extra does not change your interest rate or your monthly payment — it only reduces the balance forgiven. If you are repaying in full, paying extra toward your highest-rate loans first saves you the most money over time.