Interest rates on federal and private student loans are set differently, and the rate you get depends on the loan type and when you borrowed

Federal student loans have interest rates set by Congress, not by lenders or your credit score. The rate is the same for every borrower on the same loan type in the same year. Federal undergraduate loans (Direct Subsidized and Unsubsidized) had a rate of 5.50% for loans disbursed between July 1, 2023 and June 30, 2024. Graduate loans and Parent PLUS loans have different rates — those were 7.05% and 8.05% respectively for the same period. These rates change each year based on a formula tied to the 10-year Treasury note, so the rate you lock in depends on when you took out the loan, not when you repay it.

Private student loans work like credit cards: the lender sets the rate based on your credit history, income, and the co-signer's credit if you have one. Rates vary widely — from around 4% to over 13% depending on the lender and your financial profile. Unlike federal loans, private rates can be fixed (stays the same for the life of the loan) or variable (changes based on market conditions, usually once per year). A variable rate might start lower but can jump significantly if interest rates rise.

The interest rate is not the same as what you actually pay. The total cost of your loan depends on the rate, how long you take to repay it, and whether interest accrues (builds up) while you are in school. A 5% rate on a $20,000 loan repaid over 10 years costs roughly $5,300 in interest alone. The same loan at 8% costs roughly $9,300 in interest.

Key Takeaways

  • Federal student loan rates are set by Congress and are the same for all borrowers on the same loan type in the same year; the rate you receive is locked in when you borrow, not when you repay.
  • Private student loan rates depend on your credit score and financial history, and can range from around 4% to over 13% depending on the lender.
  • Federal loans have fixed rates; private loans can be fixed or variable, and variable rates can increase over time as market conditions change.
  • Interest that accrues while you are in school (on unsubsidized federal loans and most private loans) gets added to what you owe, making the total cost higher.
  • The actual amount you pay in interest depends on the rate, the loan amount, and how long you take to repay — not just the interest rate alone.

How federal loan rates are determined and when they change

Federal student loan rates are determined by a formula Congress wrote into law. For undergraduate loans, the rate equals the 10-year Treasury note yield plus 2.05%. For graduate loans, it is the Treasury yield plus 3.60%. For Parent PLUS loans, it is the Treasury yield plus 4.60%. The Treasury yield changes daily in financial markets, but the Department of Education calculates the new student loan rate once per year, usually in May, using an average of Treasury yields from a set period. That new rate then applies to all loans disbursed between July 1 and June 30 of the following year.

This means your rate is locked in the moment your loan is disbursed (the money is sent to your school), not when you graduate or start repaying. If you borrowed in 2022 at 3.73% and rates jump to 8% in 2024, you keep paying 3.73%. Conversely, if you borrow in 2024 at 8%, you are stuck with that rate even if rates drop to 3% later. You cannot refinance federal loans into a lower rate while keeping federal protections like income-driven repayment plans or Public Service Loan Forgiveness.

Congress can also change the formula itself, though this happens rarely. The current formula has been in place since 2013. Before that, rates were set differently, which is why older federal loans sometimes have rates like 2.55% or 6.8%.

Private loan rates and how your credit affects what you pay

Private lenders set rates based on your creditworthiness. They pull your credit report, check your income, and sometimes verify employment. A borrower with a credit score above 750 might get a 4.5% rate, while someone with a score of 650 might get 9.5% from the same lender. The difference on a $30,000 loan over 10 years is roughly $3,500 in extra interest.

Most private lenders offer both fixed and variable rates. A fixed rate stays the same for the entire repayment period — you know exactly what your payment will be. A variable rate is usually lower at first but adjusts periodically (often once per year) based on a market index like the prime rate. If you take a variable loan at 5% and the prime rate rises, your rate might jump to 7% or higher at the next adjustment. Some variable loans have rate caps — a maximum rate they cannot exceed — but not all do.

Private lenders also consider whether you have a co-signer. A co-signer with strong credit can lower your rate by 1% to 2%. If you cannot get approved on your own, a co-signer may be required. Be aware that the co-signer is legally responsible for the loan if you do not pay — it appears on their credit report and counts against their borrowing power.

Subsidized versus unsubsidized federal loans and how interest accrual works

Subsidized federal loans do not accrue interest while you are in school at least half-time, during your grace period (usually six months after graduation), or during deferment. The government pays the interest during these periods. Once you start repaying, interest accrues normally. This means a $10,000 subsidized loan at 5.50% costs roughly $2,900 in interest if repaid over 10 years — the interest only builds from the repayment start date forward.

Unsubsidized federal loans accrue interest from the moment they are disbursed, even while you are in school. If you do not pay the interest as it accrues, it gets capitalized — added to your principal balance — when repayment begins. A $10,000 unsubsidized loan at 5.50% might grow to $11,500 by the time you graduate if interest accrued for four years. You then repay interest on that $11,500, not the original $10,000. Over a 10-year repayment period, the total interest paid could be $3,500 or more.

Private loans almost always accrue interest while you are in school. Some lenders let you make interest-only payments during school to avoid capitalization, but most do not. If you do not pay, the interest capitalizes at graduation, increasing what you owe.

What happens to your rate if you refinance

Refinancing means taking out a new private loan to pay off your old loans. The new loan has a new rate based on your current credit score and financial situation. If your credit has improved since you borrowed, you might get a lower rate. If you have a stable job and higher income, lenders may offer better terms.

The trade-off is that refinancing federal loans into private loans means losing federal protections. You lose access to income-driven repayment plans, which can lower your monthly payment if your income drops. You lose the option to pause payments during economic hardship (deferment or forbearance). You lose may be able to access for Public Service Loan Forgiveness if you work in government or nonprofit jobs. You also lose the ability to have loans forgiven if you become permanently disabled. Refinancing makes sense only if the interest rate savings are large enough to outweigh these losses, and only if your financial situation is stable enough that you do not think you will need those protections.

How to find out what rate you are paying on your current loans

For federal loans, log into StudentAid.gov and view your loan details. The site shows the interest rate, the original loan amount, how much you have paid, and your current balance. You can also call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).

For private loans, log into your lender's website or call the customer service number on your loan statement. Your monthly statement also lists the interest rate. If you have multiple private loans from different lenders, you will need to check each one separately.

If you are not sure whether a loan is federal or private, StudentAid.gov will show all your federal loans. Any loan not listed there is private. You can also look at your loan documents or contact your school's financial aid office — they have records of what you borrowed.

Frequently Asked Questions

Can I get a lower interest rate on my federal student loans?

No, federal loan rates are set by law and cannot be changed. You cannot negotiate or refinance into a lower federal rate while keeping federal protections. Your only option is to refinance into a private loan, which means losing income-driven repayment, deferment, and forgiveness programs.

What is the difference between a fixed and variable interest rate?

A fixed rate stays the same for the entire life of the loan. A variable rate starts lower but adjusts periodically (usually yearly) based on market conditions and can go up or down. Variable rates are riskier because you cannot predict future payments, but they start cheaper. Fixed rates are predictable but higher initially.

Does paying extra toward my loan reduce the interest rate?

No, paying extra reduces the total interest you pay by shortening the loan term, but it does not change your interest rate. If you owe $20,000 at 5% and pay it off in five years instead of ten, you pay roughly $2,600 in interest instead of $5,300. The rate stays 5% either way.

Why did my private loan rate increase if I have a fixed rate?

If you have a truly fixed rate, it should not increase. Check your loan documents to confirm it is fixed and not variable. If it is variable, the increase happened at your annual adjustment date. Contact your lender to confirm the new rate and ask when the next adjustment occurs.

Can I refinance my federal loans to get a better rate?

You can refinance into a private loan if your credit score has improved or your income has risen since you borrowed. However, you will lose federal protections like income-driven repayment, deferment, and forgiveness programs. Refinance only if the rate savings are substantial and you do not think you will need those protections.