Understanding federal loan interest rates

Everything you need to know about federal student loan interest rates

Federal student loans continue to be the most common form of student borrowing. Offered by the U.S. government with interest rates set by federal law, and with a variety of repayment options, federal student loans can be a competitive way to pay for college.

That said, it’s important to understand how they work to find out if they are the right option for you.

What is federal student loan interest?

Interest is the cost of borrowing money from a lender; an interest rate is the percentage charged to borrow that money. It’s calculated as a percentage of the unpaid principal (i.e., the remaining balance) of the loan. That’s why it’s important to understand how much you’ll be charged for interest.

Money borrowed through federal student loans will ultimately need to be paid back with interest—unless you’re borrowing Direct Subsidized Federal Loans, which have such benefits like the government paying interest on the loan while you’re in school. These loans are needs-based and aren’t available to everyone.

What are the interest rates for federal student loans?

Federal student loan interest rates are reviewed and determined based on 10-year Treasury notes, plus a fixed rate of interest. They’re reset on July 1 of every year. Rates are set by federal law (not the Department of Education). Federal student loans only offer fixed interest rates, which means your rate never varies and you’ll have a predictable monthly payment.

Here are the current interest rates for federal student loans first disbursed on or after July 1, 2023, and before July 1, 2024:

- Direct Subsidized Loans (Undergraduate): These loans currently have a fixed interest rate of 5.50% and are only offered to those undergraduate students who’ve demonstrated financial need as defined by federal law. The government pays interest on the loan while the undergraduate student is in school at least half-time, during deferment (a period when loan payments are temporarily postponed), or during the grace period (typically the first six months after leaving school).

Direct Unsubsidized Loans (Undergraduate): These loans share the same fixed interest rate as Direct Subsidized Loans, 5.50%, but are not based on financial need. The government does not pay the interest on Direct Unsubsidized Loans, so you’re responsible for all of it.

- Direct Unsubsidized Loans (Graduate/Professional): These loans are available for graduate or professional students at a current fixed interest rate of 7.05%. Similar to their undergraduate counterpart, the government does not cover the interest on Direct Unsubsidized Loans.

- Direct PLUS Loans: These loans are unsubsidized, credit-based federal loans for parents of dependent students—or graduate/professional students—and have a current interest rate of 8.05%. Interest for these loans is charged throughout all periods of the loan.

Federal student loans vs private student loans

Just as the government offers federal student loans, banks and credit unions offer private student loans. These also charge interest (which you’ll have to pay back).

Unlike federal loans, which only offer fixed interest rates, most private student loans offer a choice of fixed or variable rates. Another difference is that private student loans generally require a credit check. That means the lender will review your credit history to make sure you can pay back the loan. If you haven’t had time to establish credit (most college students haven’t), you may need to add a cosigner—someone with good credit who will be responsible along with you for the loan. 

Generally, federal student loans have more flexible repayment plans available, so consider using those before you turn to a private student loan.

Need money for college?

Consider a Sallie Mae® private student loan

  • Available for online or on-campus study
  • Competitive fixed and variable rates
  • No origination fee or prepayment penaltyfootnote 1
  • 95% of undergraduate students who’ve been approved were approved again when they returned with a cosigner the following yearfootnote 2
Photo webImage blog Cross Sell study Girl.

How to get a federal student loan

The way to get grants, work-study, or federal loans is to submit the Free Application for Federal Student Aid (FAFSA®) every year. Each school you’re accepted to will send you a financial aid offer, which outlines the details of the amount of aid you’re entitled to. Federal student loans will be included in the offer—but it’s important to realize that, unlike grants and work-study, you’ll need to pay back federal loans with interest.

If you need money for college after you’ve exhausted savings, scholarships, and grants, federal student loans can be an excellent option. Make sure you understand the terms of your loans, the amount of interest you’ll be paying, and keep on top of changes to federal loan programs.

footnote 1. Although we do not charge you a penalty or fee if you prepay your loan, any prepayment will be applied as provided in your promissory note: first to Unpaid Fees and costs, then to Unpaid Interest, and then to Current Principal.

footnote 2. Sallie Mae loans cover enrollment periods of up to 12 months. Students must apply for a new loan each school year. This approval percentage is based on students who were approved for a Sallie Mae undergraduate loan with a cosigner in the 2021/22 school year and were approved for another Sallie Mae undergraduate loan when they returned with the same or new cosigner in 2022/23. It does not include the denied applications of students who were ultimately approved in 2022/23.

footnote Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances.

footnote External links and third-party references are provided for informational purposes only. Sallie Mae cannot guarantee the accuracy of the information provided by any third parties and assumes no responsibility for any errors or omissions contained therein. Any copyrights, trademarks, and/or service marks used in these materials are the property of their respective owners.

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