Student loan interest rates are at their highest levels in over a decade due to continued inflation and Federal Reserve policy decisions. For the 2024 – 2025 school year, undergraduate federal loans rose to 6.53%, more than double their 2020 rate. Parent and graduate loans are even higher, reaching 9.08%.
Private student loans range more widely, from 3.47% to 17.99%, and depend on your credit, cosigner, and lender. These elevated rates make borrowing more expensive and push many students to seek alternatives or better terms.
Let’s break down why student loan rates are so high and how to find the lowest possible rate.
| Loan type | Current rates (2024 – 2025)* |
| Federal undergraduate | 6.53% |
| Federal graduate | 8.08% |
| Federal parent | 9.08% |
| Private | 3.47% – 17.99% |
*Federal rates haven’t yet been determined for the 2025 – 2026 school year.
Table of Contents
What causes today’s high student loan interest rates?
1. The Federal Reserve’s aggressive rate hikes
The No. 1 reason student loan interest rates are so high in 2025 is that the Federal Reserve increased the federal funds rate multiple times between 2022 and 2024 to fight inflation. Although the Fed paused hikes in late 2024 and is expected to cut rates in the second half of 2025, current rates are still near a 20-year high.
2. Student loan rates are catching up post-COVID
From 2020 to 2022, student loan interest rates were historically low. For example, federal undergraduate loans sat at just 2.75% in 2020. The sharp rise in rates since then reflects the Fed’s effort to stabilize inflation, not a sudden change in loan policy.
How the Fed influences loan rates
The Fed sets the federal funds rate, which is the benchmark for most interest rates in the U.S., including those for student loans.
Higher Fed rates → Higher borrowing costs for banks → Higher rates for consumers (including student borrowers)
- The current federal funds rate is 4.25% – 4.50% (as of May 2025)
- Federal student loan rates are directly tied to the 10-year Treasury note, which moves with expectations about Fed policy
When the Fed cuts rates (potentially later in 2025), we may see relief in student loan interest for new borrowers, but not for those with existing fixed-rate loans.
How federal student loan rates are set
Each year, Congress sets federal student loan interest rates based on:
- The 10-year Treasury note yield
- A fixed margin added on top (varies by loan type)
Rates are fixed for the life of the loan, so once you borrow, your rate won’t change.
| Loan type | Borrower | Rate |
| Direct Subsidized | Undergrad | 5.50% |
| Direct Unsubsidized | Undergrad | 5.50% |
| Direct Unsubsidized | Grad or professional | 7.05% |
| Direct PLUS Loans | Parents or grad students | 8.05% |
How private student loan rates are determined
Private lenders use a different approach. Each lender sets its own rate ranges based on:
Factor 1: Market conditions
Rates are influenced by the prime rate and other benchmark indexes tied to Fed policy.
Factor 2: Your credit and cosigner
Lenders offer lower rates to borrowers (or cosigners) with strong credit scores, solid income, and low debt.
Factor 3: Loan structure
Most private lenders offer both fixed- and variable-rate loans. Variable rates can rise or fall, while fixed rates stay the same.
Sample rates from top private lenders (2025)
| Lender | Fixed Rates (APR, w/ all discounts) |
| Sallie Mae | 4.50% – 15.49 |
| SoFi® | 4.44% – 14.30% ⓘ |
| College Ave | 4.39% – 16.49% |
| Ascent | 4.29% – 15.76%* |
How your rate affects student loan costs
Even small differences in interest rates can add up to thousands over time.
Example: $10,000 loan over 10 years
| Loan type | Rate | Monthly pmt. | Total interest paid |
| Federal | 6.53% | $113.70 | $3,644.08 |
| Private | 3.49% | $98.84 | $1,860.68 |
That’s a difference of $1,783.40, just due to the interest rate.
How to get a lower student loan interest rate
We recommend considering federal loans first because they offer more benefits and flexible repayment options. However, if you want the lowest rate possible, consider private student loans following the steps below:
1. Apply with a cosigner
A creditworthy cosigner can cut your rate substantially.
2. Prequalify with multiple lenders
Use comparison tools—Credible is our favorite—or visit individual lenders to check your rates without affecting your credit score.
3. Refinance after graduation
Once your credit improves, refinancing could lower your rate. Some lenders even let you skip a payment annually or offer other benefits.
2025 student loan interest rate recap
| Loan type | Current rates (2024 – 2025) |
| Federal undergraduate | 6.53% |
| Federal graduate | 8.08% |
| Federal parent | 9.08% |
| Private | 3.47% – 17.99% |
About our contributors
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Written by Taylor Milam-SamuelTaylor Milam-Samuel is a personal finance writer and credentialed educator who is passionate about helping people take control of their finances and create a life they love. When she's not researching financial terms and conditions, she can be found in the classroom teaching.
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Reviewed by Gail Urban, CFP®Gail Urban, CFP®, AAMS®, has been a licensed financial advisor since 2009, specializing in helping individuals. Before personal financial advising, she worked as a business financial manager in several industries for about 25 years.