Student loan interest rates over time 2024

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student loan interest rates

The Student Loan Certainty Act of 2013 created new standards for interest rates on federal student loans. Prior to 2013, different federal loan programs offered students and their families a wider variety of loan types, some with variable interest rates and others with fixed rates. Since 2013, all federal student loans have fixed interest rates. These rates are reset each year based on a formula indexed to the value of a 10-year Treasury note.

Key insights

The interest rate for undergraduate loans with a disbursement date between July 1, 2023, and June 30, 2024, is 5.5%. For graduate loans, the rate is 7.05%. For PLUS loans, the rate is 8.05%.

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Interest rates for direct undergraduate student loans increased by more than 150 basis points between the academic years of 2013-14 and 2023-24 (from 3.86% to 5.5%).

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In the 2022-23 school year, federal student loans accounted for 85% of total education borrowing.

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Federal student loan interest is calculated as daily simple interest. For subsidized loans, borrowers are not responsible for interest accrued while they are in school or during grace and deferment periods. Unsubsidized loans begin accruing interest upon disbursement.

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Student loan interest statistics

Student loan interest rates vary depending on the type of loan, level of education and year when the loan is disbursed. Since 2013, the interest rate on new federal student loans has been linked to the 10-year U.S. Treasury yield. That yield changes as conditions in the broader economy change, which means that the student loan interest rate goes up and down with the economy as well.

Private student loan interest rates tend to have a wider range and are not pegged to any specific standard. Nonfederal loans make up a relatively small part of the student loan market, comprising only 15% of total student borrowing in the 2022-23 school year.

In addition to interest, most student loans include loan fees. Loan fees are a percentage of the overall loan amount charged to the borrower. These fees are taken directly from the money disbursed to the student (or their school). For example, if a student had a loan of $10,000 with a loan fee of 1%, $100 would be set aside for loan fees.

Borrowers are responsible for paying back the entire amount of their loans, including the loan fees. So, the student in the above scenario would be responsible for paying back the full $10,000 (plus interest), not just the $9,900 they received.

Current fees for federal student loans

Note: Rates apply to loans with initial disbursement dates between Oct. 1 2020, and Sept. 30, 2024.; Source: U.S. Department of Education, Federal Student Aid

Subsidized vs. unsubsidized undergraduate loans

The two primary types of federal student loans available to undergraduates are direct subsidized loans and direct unsubsidized loans. The subsidized loan program is available to students who can demonstrate financial need (a calculation that involves a comparison between the student’s expected family contribution and the cost of attendance at a particular school). In contrast, unsubsidized loans are available to any student regardless of financial need. As of 2024, the annual award limit for a subsidized loan was $5,500, while the limit for an unsubsidized loan was $20,500.

Although the interest rate is the same on subsidized and unsubsidized loans, the repayment of interest is handled differently. With a subsidized loan, the Department of Education pays the interest while the student is in school, during the six-month grace period after a student leaves school and during any deferment periods. In contrast, borrowers are responsible for paying all accrued interest on unsubsidized loans.

In the 2022-23 school year, federal unsubsidized loans comprised 44% of all education borrowing, while federal subsidized loans made up 16%.

Grad school student loan interest rates

Student loans for graduate or professional school have different interest rates than undergraduate loans. The interest rate for graduate school direct unsubsidized loans disbursed between July 1, 2023, and July 1, 2024, is 7.05%. Like the interest rate for undergraduate loans, this rate changes from year to year (although once you have a loan, the rate is fixed for the life of that loan).

Federal PLUS and federal parent PLUS loans

Federal PLUS and parent PLUS loans are available to pay for education costs that aren’t covered by financial aid. Graduate and professional students are eligible for direct PLUS loans, while biological or adoptive parents of undergraduate students are eligible for parent PLUS loans. PLUS loans have higher interest rates and fees than other federal student loan programs. The interest rate for PLUS loans disbursed between July 1, 2023, and July 1, 2024, is 8.05% (the loan fee is 4.228%).

In the 2022/23 school year, direct PLUS loans to graduate students comprised 14% of overall education borrowing, while parent PLUS loans made up 11%.

How does student loan interest accrue?

Federal student loans are daily simple interest loans, which means that interest accrues on a daily basis. You can calculate the amount of interest you’ll owe on a federal student loan in a couple of easy steps:

  • First, calculate the daily interest rate by dividing your interest rate by 365. 
    • A loan with the current undergraduate interest rate of 5.5%, would have a daily interest rate of 0.00015068.
  • Multiplying that number times your outstanding principal balance provides the daily amount the loan is accruing.

A loan with a $10,000 principal balance would accrue approximately $1.51 in interest each day, or just over $45 in an average month. This interest begins accruing from the first day a loan is disbursed.

Different types of federal loans have different rules for the repayment of accrued interest and how it adds to your principal balance. If interest is unpaid for a period of time, it “capitalizes” — meaning that it is added to the principal balance.7 Adding outstanding interest to the principal balance results in the borrower paying interest on interest, increasing the overall amount owed.

Source: U.S. Department of Education, Federal Student Aid

FAQ

Will my student loan interest rate change over time?

Not if you have a federal student loan. Since 2013, all federal student loans come with fixed interest rates, meaning they stay the same for the life of the loan.

What is the current interest rate for student loans?

For the 2023-24 school year, the interest rate on a direct undergraduate loan is 5.50%. For a direct graduate loan, the interest rate is 7.05%. For a PLUS loan, the interest rate is 8.05%.

What is the average student loan rate?

The average student loan rate among all borrowers (including those with federal and private student loans) is 6.87%.


References

  1. Fay, M. “Interest Rates on Student Loans.” Debt.org. Evaluated May 2, 2024.Link Here
  2. “Federal Student Loan Interest Rates.” Higher Education Loan Authority of the State of Missouri; U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  3. Ma, J. “Trends in College Pricing and Student Aid 2023.” CollegeBoard. Evaluated May 2, 2024.Link Here
  4. “Federal Student Loans.” U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  5. “Direct Subsidized and Direct Unsubsidized Loans.” U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  6. “Direct PLUS Loans for Parents.” U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  7. “Interest Rates and Fees for Federal Student Loans.” U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  8. Baker, J. “Update on Direct Loan Interest Rates.” U.S. Department of Education, Federal Student Aid. Evaluated May 2, 2024.Link Here
  9. Hanson, M. “Average student loan interest rate.” Education Data Initiative. Evaluated May 2, 2024.Link Here
  10. “The Volume and Repayment of Federal Student Loans: 1995 to 2017.” Congressional Budget Office. Evaluated May 2, 2024.Link Here
  11. “H.R.1911 - Bipartisan Student Loan Certainty Act of 2013: Summary.” U.S. Congress. Evaluated May 2, 2024.Link Here
  12. Kantrowitz, M. “Historical Federal Student Loan Interest Rates and Fees.” Saving for College. Evaluated May 2, 2024.Link Here

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