For the 2025-2026 academic year, the interest rate for federal undergraduate student loans is 6.39%. If a new private student loan is required, it is important to note that the interest rates vary depending on the lender and if the loan has a fixed or variable interest rate. For instance, a fixed-interest loan from the lending marketplace Credible can have an interest rate anywhere between 2.65% and 17.99%.
Private lenders decide on a range for interest rates. The actual rate that a student will receive depends on the creditworthiness of the borrower and any co-signer. Moreover, credit score and income are not factors when it comes to federal student loans. But they play a significant role in private lenders' decisions. Students who fail to meet the credit requirements will need a co-signer. In the 2022-2023 period, more than 90% of newly originated undergraduate private student loans were made with a co-signer.
Interest rates for federal student loans for new undergraduate loans from July 1, 2025, until June 30, 2026, are 6.39%. Graduate student loans bear an interest rate of 7.94%, while interest rates for parent PLUS loans are 8.94% during this period. Federal student loan interest rates are reviewed and adjusted annually.
However, the pandemic has had a severe impact on enrollment in colleges and universities, causing a one-year decline in total post-secondary enrollment of 4.1% in the spring of 2022. This decline continued even in the fall of 2022, with combined undergraduate and graduate enrollment still 5.8% lower than in 2019.
In the spring of 2024, enrollment rose by 2.5%, marking the second consecutive semester of growth after the pandemic. With this, the amount of federal student loan debt surpassed $1.6 trillion as of Q4'24, indicating the enormity of student debt.
Students looking for loan relief have several options, including the Public Service Loan Forgiveness (PSLF) program and income-driven repayment (IDR) plan.
Interest on student loans can be calculated as either compound or simple interest, based on the lender's terms. Most private and federal student loans use a simple interest formula to calculate interest.
Interest rates for federal student loans are determined every May, based on the 10-year Treasury note auction, plus a fixed increase with a cap. On the other hand, each lender determines private student loan interest rates based on the creditworthiness of the borrower and co-signer, along with market factors.
It is crucial to understand the rates and how they function before applying. Experts advise exhausting all options for federal student loans first using the Free Application for Federal Student Aid (FAFSA), then researching the best private student loans to fill in any gaps.
Refinancing student loans may seem like a viable option if you're struggling to pay them. However, it would help if you considered the potential loss of any protections received from having federal loans. Review all the best student loan refinance options carefully, keeping in mind your unique debt situations.