Borrowing student loans can be expensive, but it's their interest that really costs you over time. How much will depend on your interest rate, which itself depends on a bunch of different factors.
Fixed Vs. Variable
Student loans can come with "fixed" or "variable" interest rates.
A fixed rate remains the same over the lifetime of your loan. Variable rates shift, typically annually, based on market factors. Variable student loans typically change rates every July 1, which means that (surprise!) your payments may go up or down around that time.
Stafford loans and PLUS loans have fixed interest rates set every July 1. This means that your Stafford or PLUS loans will likely have different rates every year you borrow, but each loan's individual rate will not change over its life. Think of this as a variable-fixed rate, if that makes sense.
Current Loan Interest Rates
The type of loan you have, when it was first disbursed (not when you signed for it), and whether you're a graduate or undergraduate student all play a part in determining your loan's interest rate. Here's a list of the current rates for different loans and different borrowers:
- Undergraduate Stafford loans: The government sets these interest rates to equal the 10-year Treasury index rate plus 2.05%, with a cap of 8.25%. The current rate for the undergraduate Stafford loans is 4.45%.
- Graduate unsubsidized Stafford loans: These loans have an interest rate of the 10-year Treasury index rate plus 3.6%, with a cap of 9.5%. Their current rate is 6%.
- PLUS loans: Parent and Grad PLUS loans have an interest rate of the 10-year Treasury index rate plus 4.6%, with a cap of 10.50%. Their current rate is 7%.
- Perkins loans: Perkins loans have a 5% fixed interest rate.
- Private loans: These will have variable or fixed interest rates and may require co-signers. Contact your loan servicer for information about your interest rate.
- Institutional loans: Your school determines the terms and conditions of these loans. Contact your financial aid office for more information about your interest rate.
- State loans: These interest rates and terms will vary depending on the state and annual funding. Your financial aid office may have interest rate information for you. Otherwise, contact your loan servicer or your state's Department of Education.
Consolidation Loan Interest Rates
The rates on all federal Consolidation loans made as of October 1, 1998, are the weighted average of the rates on the loans you consolidate. This average is then rounded up to the nearest 1/8%. This rate will be fixed for the remaining term of the loan.
Here's an example. If you were repaying a loan of $5,000 at 6.8% and a loan of $10,000 at 6.0%, your rate would be 6.375%. Here is why:
- The amount you owe on each loan is multiplied by its respective interest rate (5,000 x 0.068 = 340; 10,000 x 0.06 = 600).
- These amounts are then added together (340 + 600 = 940).
- This total is divided by the total amount you owe (940 / 15,000 = 0.063).
- Multiplied by 100, this number creates your weighted average interest rate (100 x 0.063 = 6.3).
- Your weighted average is then rounded up to the nearest 1/8% percent (6.3 + 0.075 = 6.375).
Lowering Interest Rates
Unfortunately, you cannot refinance federal student loans as new federal loans to take advantage of lower interest rates after you borrow them. But, there may be ways outlined in your master promissory note (your loan agreement) that lower your rate a little bit—hey, every little bit counts! For instance, your lender may give you a partial point off your interest rate (0.25% to 0.50%) for signing up for automatic payments or for making a bunch of payments on time (2 years, for example).
Private student loans may have some of the same provisions. You'll need to look at your original paperwork or talk to your loan servicer to learn more. With private student loans, you may also be able to consolidate with your current lender to lower your rate (or consolidate with another lender to hopefully qualify for a better rate). Just remember to research the Consolidation loan's fine print thoroughly before signing anything, so you don’t get stuck with a loan that puts you in a worse off position.
What's Your Rate?
Want to know why your rate is what it is? Check out this chart of federal student loan rates since 2006. (For rates earlier than these, check out this link.) Want to know your actual rate? Check with your loan holder or look at your original loan paperwork.
First Disbursed When?
Undergraduate Subsidized Stafford Loan
Undergraduate Unsubsidized Stafford Loan
Graduate Unsubsidized Stafford Loan
Direct PLUS Loan
FFELP PLUS Loan
July 1, 2017 to June 30, 2018
July 1, 2016 to June 30, 2017
July 1, 2015 to June 30, 2016
July 1, 2014 to June 30, 2015
July 1, 2013 to June 30, 2014
July 1, 2011 to June 30, 2013
July 1, 2010 to June 30, 2011
July 1, 2009 to June 30, 2010
July 1, 2008 to June 30, 2009
July 1, 2006 to June 30, 2008