Federal student loan interest rates are set by Congress, not by lenders, and they change each year based on a formula tied to the 10-year Treasury note
The interest rate you pay on a federal student loan depends on the type of loan and the year you took it out. Unlike private loans, federal rates are not negotiated between you and a bank — Congress passes a law each year that sets the rate for new loans disbursed that year. The rate stays the same for the life of that loan, even if rates change later.
The formula Congress uses adds a fixed percentage to the yield of the 10-year Treasury note, measured in May of each year. That sum becomes the rate for all new federal loans disbursed between July 1 and June 30 of the following year. Because Treasury yields move with the broader economy, federal rates have ranged from near zero in 2012 to over 8 percent in recent years.
Key Takeaways
- Federal student loan rates are set by Congress using a formula based on the 10-year Treasury note, and the rate you receive is locked in for the life of your loan.
- Undergraduate Direct Loans, Graduate Direct Loans, and Parent PLUS Loans each have their own interest rate, set separately each year.
- The interest rate does not change after you receive your loan, even if federal rates rise or fall in future years.
- Federal rates are typically lower than private student loan rates, but private loans may offer variable rates that start lower and adjust over time.
How the federal rate formula works
Each May, the U.S. Department of Education looks up the yield on the 10-year Treasury note. Congress has written a different add-on percentage for each loan type. For Undergraduate Direct Loans, the add-on is 2.05 percent. For Graduate Direct Loans, it is 2.45 percent. For Parent PLUS Loans, it is 3.10 percent.
The Department adds that percentage to the Treasury yield and rounds to the nearest one-eighth of a percent. That number becomes the interest rate for all new loans of that type disbursed between July 1 and June 30. If the Treasury yield is 4.50 percent and the add-on for undergraduates is 2.05 percent, the new undergraduate rate would be 6.55 percent.
Congress can change these add-on percentages, but it rarely does. The formula has been in place since 2013. Before that, rates were set differently — some years Congress voted on a specific rate, and in other years rates were tied to the prime lending rate.
Interest rates for each federal loan type
Federal student loans come in three main types for borrowers, and each has its own interest rate set under the formula above.
Undergraduate Direct Loans are available to students enrolled at least half-time in a degree or certificate program. These carry the lowest add-on percentage (2.05 percent) and therefore the lowest rates overall. Rates have ranged from 3.76 percent to 8.05 percent in recent years, depending on the Treasury yield that May.
Graduate Direct Loans are for students pursuing a master's degree, doctoral degree, or professional degree. They carry a higher add-on (2.45 percent) than undergraduate loans, so the rate is typically 0.4 to 0.5 percent higher. A graduate borrower taking out a loan in the same year an undergraduate rate is 6.55 percent would see a graduate rate around 6.95 percent.
Parent PLUS Loans are federal loans that parents can take out to pay for their child's education. They have the highest add-on (3.10 percent) and therefore the highest rates. Parent PLUS rates have ranged from 5.31 percent to 9.20 percent in recent years.
Why your rate stays the same for the entire loan
Federal student loans use a fixed interest rate, meaning the percentage you pay does not change after the loan is disbursed. If you borrow at 6.55 percent in July 2024, you will pay 6.55 percent on that loan for 10 years, 20 years, or however long you take to repay it — even if federal rates drop to 4 percent next year.
This is different from private student loans, many of which offer variable rates that adjust every quarter or every year based on a market index. A variable-rate private loan might start at 5 percent but climb to 8 percent if the index rises. Federal loans protect you from that risk.
The trade-off is that you cannot refinance a federal loan into a lower rate if rates fall. You can refinance into a private loan, but you would lose federal protections like income-driven repayment plans and the Public Service Loan Forgiveness program.
How federal rates compare to private student loans
Federal student loan rates are typically lower than private rates, especially for undergraduate borrowers. Federal undergraduate rates have ranged from 3.76 percent to 8.05 percent in recent years. Private lenders typically offer rates starting around 6 to 7 percent for borrowers with good credit, and rates can reach 12 percent or higher for borrowers with limited credit history.
However, private loans may offer a lower starting rate if you have strong credit and a co-signer. Some private lenders advertise rates as low as 4 or 5 percent for their best borrowers. The catch is that these are often variable rates, meaning they will increase over time. A federal loan at 6.55 percent is fixed; a private loan at 5 percent today might be 7 or 8 percent in three years.
Federal loans also come with built-in protections: income-driven repayment plans that cap your monthly payment, deferment and forbearance options if you lose your job, and forgiveness programs for public service workers. Private loans rarely offer these features.
Interest rates on older federal loans
If you borrowed federal student loans before 2013, your rate may have been set under a different formula. Loans disbursed between 2006 and 2013 used the LIBOR-based formula, which tied rates to the London Interbank Offered Rate. Rates from that period ranged from 2.375 percent to 8.5 percent depending on the loan type and year.
Loans disbursed before 2006 may have variable rates that adjusted annually. Some older federal loans have rates as low as 2 percent or as high as 8.25 percent. If you have federal loans from multiple years, each loan carries the rate that was set when it was disbursed.
You can find the interest rate on each of your federal loans by logging into your account at StudentAid.gov or by contacting your loan servicer. Your servicer's name and contact information appear on your monthly statement.
What happens when Congress changes the formula
Congress can change the add-on percentages in the rate formula, but this happens rarely. The current formula has been in place since the Higher Education Act was reauthorized in 2013. Before that, Congress changed the formula multiple times — sometimes annually, sometimes every few years.
If Congress votes to change the add-on percentages, the change applies only to loans disbursed after the change takes effect. Your existing loans keep their original rate. For example, if Congress lowered the undergraduate add-on from 2.05 percent to 1.50 percent, new undergraduate loans would have a lower rate going forward, but your existing loan would stay at whatever rate you locked in.
Congress also has the power to set a cap on federal interest rates or to freeze rates at a certain level. These changes are rare and usually happen during economic crises or when there is broad political agreement that rates have become too high.
Frequently Asked Questions
Can I lock in a lower interest rate if I pay my loan off faster?
No. Your interest rate is fixed from the moment the loan is disbursed and does not change based on how quickly you repay. However, paying extra toward principal does reduce the total interest you pay over the life of the loan because you are paying interest on a smaller balance.
What if I took out federal loans in different years — do they all have the same rate?
No. Each federal loan carries the interest rate that was in effect when that specific loan was disbursed. If you borrowed in 2020 and again in 2024, those two loans have different rates. You can see the rate on each loan by logging into StudentAid.gov.
Can I refinance my federal student loan into a lower rate?
You cannot refinance within the federal system, but you can refinance into a private loan if a private lender offers you a lower rate. Be aware that private loans do not include federal protections like income-driven repayment or Public Service Loan Forgiveness. Refinancing is permanent — once you move to a private loan, you cannot move back to federal.
Why are Parent PLUS Loans more expensive than undergraduate loans?
Congress set a higher add-on percentage for Parent PLUS Loans (3.10 percent versus 2.05 percent for undergraduates) because parent borrowers typically have less time to repay before retirement. The higher rate reflects the higher risk to the federal government. Parent PLUS Loans also have fewer repayment options than other federal loans.
Do interest rates ever go down for existing loans?
No. Federal student loans have fixed rates that do not change after disbursement. If federal rates fall in future years, your rate stays the same. This is a protection — it also means you cannot benefit if rates drop, but you are protected if rates rise.