Federal student loan interest rates are likely to drop, higher education expert says Here's what to know
Federal student loans should come with slightly lower interest rates in the 2025-2026 academic year
The interest rates on federal student loans are likely to decline slightly in the 2025-2026 academic year, according to an estimate by higher education expert Mark Kantrowitz.
A drop in interest rates could provide some very modest relief to families trying to cover college costs. However, recent changes to the lending system have narrowed loan forgiveness and affordable repayment options for borrowers.
More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion.
Here's what to know.
Expected student loan interest rates for 2025-2026
The interest rate on federal direct undergraduate loans could be 6.39% in the 2025-2026 academic year, estimates Kantrowitz. The undergraduate rate for the 2024-2025 year is 6.53%.
At those new undergraduate rates, every $10,000 a family borrowed would lead to a $113 monthly student loan payment after graduation, assuming the student enrolled in a standard 10-year repayment plan. With interest, the borrower would repay $13,559.87 over that decade.
For graduate students, loans will likely come with an 7.94% interest rate, compared with the current 8.08%, Kantrowitz finds.
PLUS loans for graduate students and parents may have a 8.94% interest rate, a decrease from 9.08% now.
The government sets interest rates on its education loans once a year. The rates, which run from July 1 to June 30 of the following year, are based in part on the May auction of the 10-year Treasury note.
Kantrowitz based his calculations on the Treasury Department's announced high yield rate on Tuesday of 4.34%.
Which borrowers face lower rates
All federal education loans issued on or after July 1, 2025, will be subject to the new rates.
Don't worry about loans you've taken out for previous academic years: most federal student loan rates are fixed, meaning the rates on those existing loans won't change. (You also can't try to get the new rates before they become available this summer.)
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The rate changes apply only to federal student loans.
Private loans come with their own — often higher — interest rates, which are typically based on factors including creditworthiness and the borrower's ability to secure a co-signer.
This story originally appeared on: CNBC - Author:Annie Nova
