Student loan interest rates vary by loan type, and the rate you get depends on whether you borrowed federal or private loans
Federal student loans have fixed interest rates set by Congress, which means your rate stays the same for the life of the loan. The rate changes each year for new loans, but once you take out a loan at a particular rate, that rate is locked in. Private student loans typically have variable or fixed rates set by the lender based on your credit score and other factors — and variable rates can change over time.
The interest you pay is calculated as a percentage of what you borrowed. If you borrowed $10,000 at 5% interest, you pay $500 per year in interest alone (though the exact amount depends on how much principal you've paid down and which repayment plan you're on). The longer you take to repay, the more total interest you'll pay, even if the rate itself never changes.
Key Takeaways
- Federal student loan rates are fixed by Congress and vary by loan type — Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans each have different rates.
- Private student loan rates depend on your credit score and the lender's terms, and may be variable (changing over time) or fixed.
- Interest accrues (builds up) differently on subsidized versus unsubsidized federal loans — the government pays interest on subsidized loans while you're in school, but not on unsubsidized ones.
- Your repayment plan affects how much total interest you pay over time, because longer repayment periods mean more interest accumulates.
- You can see your exact interest rate and how much you owe on federal loans through your loan servicer or the Federal Student Aid website.
Federal student loan interest rates by loan type
The federal government offers three main types of student loans, each with its own interest rate. Direct Subsidized Loans (for undergraduate students with financial need) and Direct Unsubsidized Loans (for undergraduates and graduate students, regardless of need) currently have the same interest rate, which Congress sets annually. Direct PLUS Loans (for graduate students and parents of undergraduates) carry a higher rate. These rates are fixed and do not change after you receive the loan.
The rates for loans disbursed in the 2024–2025 academic year are 6.53% for Subsidized and Unsubsidized loans and 8.05% for PLUS loans. Rates for previous years differ — for example, loans from 2023–2024 carried 5.50% and 7.05% respectively. You can find the rate for your specific loan by checking your loan documents or logging into your servicer's website.
The key difference is not the rate itself, but when interest starts to accrue. On a Subsidized Loan, the government pays the interest while you're in school at least half-time, during your grace period, and during deferment. On an Unsubsidized Loan, interest accrues from the moment the loan is disbursed — even while you're still in school — and gets added to what you owe.
How private student loan interest rates work
Private lenders set their own rates based on your creditworthiness, income, and the lender's risk assessment. A borrower with excellent credit might receive a rate of 4% to 6%, while someone with fair or poor credit could face rates of 10% or higher. Some private loans offer fixed rates that never change; others offer variable rates that start lower but can increase based on market conditions.
Variable-rate private loans are typically tied to an index like the prime rate or SOFR (Secured Overnight Financing Rate). The lender adds a margin on top of that index, and when the index rises, your rate rises with it. This means your monthly payment could increase over time, even if you haven't missed a payment. Fixed-rate private loans protect you from this risk — your rate and payment stay the same throughout repayment.
Private lenders also allow you to choose a co-signer (usually a parent) to strengthen your application if your credit is limited. A co-signer's credit score and income are factored into the rate you receive, and a strong co-signer can lower your rate significantly.
The difference between subsidized and unsubsidized interest
On a Subsidized Loan, the government covers the interest that accrues while you're in school, during your six-month grace period after graduation, and during certain deferment periods. This means you don't owe that interest — it simply disappears. If you borrowed $10,000 at 6.53% and spent four years in school, the government paid roughly $2,612 in interest on your behalf. When you start repaying, you owe only the original $10,000.
On an Unsubsidized Loan, you are responsible for all interest from day one. If you don't pay the interest while in school, it capitalizes — meaning it gets added to your principal balance. That $10,000 Unsubsidized Loan at 6.53% grows to roughly $12,612 by the time you graduate (assuming four years and no payments). Now you're repaying $12,612 instead of $10,000, and interest accrues on that larger amount.
This is why subsidized loans are generally preferable if you may have access to for them — you're not paying interest on interest while you're still studying. However, subsidized loans are only available to undergraduate students with demonstrated financial need, and the total amount you can borrow is capped lower than unsubsidized loans.
How interest accrues on different repayment plans
Your repayment plan determines how long you have to repay and therefore how much total interest you'll pay over time. The Standard Repayment Plan spreads payments over 10 years and results in the least total interest paid, because you're paying down the principal faster. An Extended Repayment Plan stretches payments over 20 to 25 years, lowering your monthly payment but nearly doubling the total interest you pay.
Income-Driven Repayment Plans (Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Contingent Repayment) set your monthly payment based on your income rather than a fixed schedule. These plans can extend repayment to 20 or 25 years, which means substantially more interest accrues. However, any remaining balance is forgiven after the repayment period ends — though that forgiveness may be taxable as income.
Interest continues to accrue on all plans, but the longer your repayment term, the more of your payment goes toward interest rather than principal in the early years. On a 10-year plan, you might pay $1,500 in total interest on a $10,000 loan. On a 25-year plan, that same loan could cost $4,000 or more in interest.
Where to find your interest rate and current balance
For federal loans, log into studentaid.gov using your FSA ID. This site shows every federal loan you have, the interest rate on each one, your current balance, and your loan servicer's contact information. Your servicer is the company that actually collects your payments and handles your account day-to-day — it's not the Department of Education, even though the loans are federal.
You can also contact your loan servicer directly by phone or through their website. The servicer's name and phone number appear on your loan documents and on studentaid.gov. They can tell you exactly how much interest you've accrued, what your next payment will be, and what your total repayment cost will be under your current plan.
For private loans, check your lender's website or your loan documents. Private lenders are not required to report to studentaid.gov, so you'll need to track them separately. If you've lost track of a private loan, you can search the National Student Loan Data System (NSLDS) at studentaid.gov, though it primarily tracks federal loans.
How to reduce the interest you pay
The most direct way to reduce total interest is to shorten your repayment timeline. Switching from a 25-year income-driven plan to a 10-year Standard plan means you pay significantly less interest overall — though your monthly payment will be higher. If your income has increased since you graduated, moving to a shorter plan becomes more feasible.
Making extra payments toward principal also reduces interest. Any payment above your required monthly amount goes directly to principal (not interest), which lowers the balance that future interest accrues on. Even an extra $50 per month can save thousands in interest over the life of the loan.
For private loans, refinancing with a new lender may lower your rate if your credit has improved since you originally borrowed. Refinancing means taking out a new loan to pay off the old one, and you'll get a new rate based on your current credit profile. However, refinancing federal loans into private loans means you lose federal protections like income-driven repayment and Public Service Loan Forgiveness, so this trade-off should be considered carefully.
Frequently Asked Questions
Does interest on student loans compound?
Interest on federal student loans does not compound in the traditional sense — it accrues daily based on your outstanding balance, but it doesn't earn interest on itself unless you fail to pay it. However, when unsubsidized interest capitalizes (gets added to your principal), future interest accrues on that larger amount, which has a similar effect to compounding.
Can I deduct student loan interest on my taxes?
Yes. You can deduct up to $2,500 per year in student loan interest paid, as long as your income is below certain limits (which vary by filing status). This deduction applies to both federal and private student loans. You'll receive a Form 1098-E from your loan servicer showing how much interest you paid that year.
What happens to interest if I go into deferment or forbearance?
On subsidized federal loans, the government continues to pay interest during deferment, so nothing is added to your balance. On unsubsidized loans, interest accrues but you don't have to pay it — it capitalizes when deferment ends. During forbearance, interest accrues on all loan types and capitalizes when forbearance ends, increasing what you owe.
Is the interest rate the same for all borrowers of the same loan type?
For federal loans, yes — all Direct Subsidized Loans disbursed in the same academic year carry the same rate, regardless of credit score or income. For private loans, no — rates vary significantly based on creditworthiness, income, and the lender's terms.
Can my interest rate change after I take out the loan?
Federal loan rates are fixed and never change. Private loan rates may be fixed or variable — if variable, your rate can increase or decrease based on market conditions. Check your promissory note to see whether your private loan has a fixed or variable rate.