|Loan Type||Fixed APR||Variable APR|
|Undergraduate and Graduate||4.43% to 15.99%||5.13% to 16.45%|
|Refinance||4.40% to 11.83%||5.03% to 14.00%|
While federal student loans don’t take into account credit scores and income, these factors play a big role in private lenders’ decisions. Students who don’t meet lenders’ credit requirements will need a cosigner. The 2017 Annual Report of the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman noted that more than 90% of private student loans were made with a cosigner. However, even if you don’t have a good credit score or cosigner, there are lenders that offer student loans for bad credit and student loans without a cosigner.
Federal Student Loan Interest Rates
Between July 1, 2023, and June 30, 2024, federal student loan rates for new undergraduate loans are 5.50%. New graduate loan rates are 7.05% and new parent PLUS loan interest rates are 8.05% during that same time period. These rates update annually.
Currently, student loan payments are paused and no interest is accruing. However, this is coming to an end. Congress has passed legislation ending extensions to the payment pause. Interest will begin accruing on September 1st, 2023 and payments will be due starting in October.
There is an origination fee of 1.057% for federal direct subsidized loans and direct unsubsidized loans. The origination fee is higher at 4.228% for parent PLUS loans. This fee isn’t added to your repayment. Instead, it’s deducted from your initial loan disbursement.
College Enrollment Trends
In the fall of 2020, colleges and universities opened their classrooms and dorm rooms again after going remote due to the pandemic. Within the first few weeks of resuming classes, many schools had to once again postpone sports, and they reported widespread quarantines, which forced them to switch from in-person classes to virtual ones.
Less expected were the trends with enrollment. Many thought that community colleges would see higher enrollment during the pandemic, but data showed that fall enrollment was up for some large public universities, while enrollment at community colleges was down as much as 30%.
In the spring of 2022, enrollment continued to exhibit worsening trends with total post-secondary enrollment falling to 16.2 million, a one-year decline of 4.1%. This followed a 3.5% drop in the year prior. The bulk of the drop was in undergraduate enrollment—4.7% from the prior year. The number of individuals enrolled in undergraduate programs was down 9.4% from before the pandemic.
By fall 2022, enrollment began to stabilize, but it was still down 1.23 million from before the pandemic. Freshmen enrollment was up, with community colleges seeing an increase of 6.1% in fall 2022 compared to fall 2019.
Student Debt Continues to Rise
Since the 2007–2008 Great Recession, federal funding for public universities has decreased by 22%, while tuition costs have risen by 27%. This has led to student loan debt that has surpassed $1.6 trillion. The debt may get worse if the education system is forced to undergo more budget cuts and more unemployed people in the U.S. take advantage of low interest rates to go back to school.
Try to take out no more in student loans than what you expect to make in your first year out of school.
While student debt is an ongoing issue, some borrowers may be able to get relief through student loan forgiveness programs. Borrowers working toward forgiveness under the Public Service Loan Forgiveness (PSLF) program or on an income-driven repayment (IDR) plan may get their remaining balance forgiven after 120 qualifying payments are made.
How Is Student Loan Interest Calculated?
Federal student loans and most private student loans use a simple interest formula to calculate student loan interest. This formula consists of multiplying your outstanding principal balance by the interest rate factor and multiplying that result by the number of days since you made your last payment.
- Interest Amount = (Outstanding Principal Balance × Interest Rate Factor) × Number of Days Since Last Payment
The interest rate factor is used to calculate the amount of interest that accrues on your loan. It is determined by dividing your loan’s interest rate by the number of days in the year.
How Are Student Loan Interest Rates Calculated?
Federal student loan interest rates are determined by the 10-year Treasury note auction every May, plus a fixed increase with a cap.
- Direct unsubsidized loans for undergraduates: 10-year Treasury + 2.05%, capped at 8.25%
- Direct unsubsidized loans for graduates: 10-year Treasury + 3.60%, capped at 9.50%
- Direct PLUS loans: 10-year Treasury + 4.60%, capped at 10.50%
Private student loan interest rates are determined by each lender based on market factors and the borrower’s and cosigner’s creditworthiness. Most private lenders also offer a variable interest rate, which typically fluctuates monthly or quarterly with overnight lending rates such as the Secured Overnight Financing Rate (SOFR).
What Are Current Student Loan Interest Rates?
Federal student loan rates for the year between July 1, 2022, to June 30, 2023, are:
- Direct subsidized and unsubsidized loans for undergraduates: 4.99%
- Direct unsubsidized loans for graduates or professional borrowers: 6.54%
- Direct PLUS loans for parents and graduate or professional students: 7.54%
The Bottom Line
Federal student loan rates are relatively low when compared to historic levels. If you need student loans to pay for a college education, learn what the interest rates are and how they work before applying. Always exhaust all your options for federal student loans first by using the Free Application for Federal Student Aid (FAFSA), then research the best private student loans to fill in any gaps. Whether you choose federal or private loans, only take out what you need and can afford to repay.
If you have student loans and need help paying them, you may want to consider a refinance—but know that this could cause you to lose any protections you receive from having federal loans. If refinancing is right for you, review all of the best student loan refinance companies, which offer competitive rates and can cater to unique debt situations.