Interest rates for federal student loans for the 2024-25 school year are expected to rise slightly more than 1%, beginning on July 1, 2024. Federal student loan rates are fixed for the life of the loan and will apply to loans disbursed between July 1, 2024, and June 30, 2025.
The rates for federal student loans are based on a formula that uses the high yield from the last 10-year Treasury Note auction in May. That auction took place on May 8, 2024, meaning it is now possible to calculate new student loan interest rates for all types of Direct loans.
What will the new rates be?
All federal student loans taken out as of July 1, 2024, for the 2024-2025 academic year have the following fixed rates:
| Type of federal loan | New rate for 2024-25 | Old rate for 2023-24 |
|---|---|---|
Undergraduate Direct Loan | 6.53% | 5.50% |
Graduate Direct Loan | 8.08% | 7.05% |
Graduate PLUS Loan | 9.08% | 8.05% |
Parent PLUS Loan | 9.08% | 8.05% |
Who is affected?
If you plan to apply for a federal Direct student loan—whether as an undergraduate, graduate student, or parent—the new rates will affect loans issued on July 1, 2024, or later.
The interest rate on any previous federal Direct loan that you have will not be impacted. Those loans, like these, have a fixed rate for the life of the loan that will never increase. Additionally, any private student loans you have will not be affected by the new federal Direct student loan rates.
It’s important to note that you can’t get ahead of the game by taking out a federal loan now for next year at the lower 2023-24 rates. Federal student loans for 2024-25 will only be dispersed starting July 1, 2024, when the new interest rates apply.
How student loan rates are calculated
Federal Direct student loan interest rates are calculated yearly based on a formula established by the Higher Education Act of 1965 that adds a set percentage to the last 10-year Treasury Note auction in May. For 2024 this auction took place on May 8, and the new high-yield rate was 4.48%.
The formula is illustrated in the table below.
| Type of federal loan | New 10-Year Treasury yield | Add-on percent | New interest rate |
|---|---|---|---|
Undergraduate Direct | 4.48% | 2.05% | 6.53% |
Graduate Direct | 4.48% | 3.60% | 8.08% |
Graduate PLUS | 4.48% | 4.60% | 9.08% |
Parent PLUS | 4.48% | 4.60% | 9.08% |
Why are student loan rates rising?
As noted, federal Direct student loan rates are set annually based on a formula that adds a set percentage to the May 10-year Treasury yield. As the Treasury yield rises, so do student loan interest rates. Treasury yields have risen since 2022, and student loan interest rates have accompanied them.
This pattern will continue as long as the Federal Reserve maintains high interest rates to combat inflation, as Treasury yields tend to follow Federal Reserve benchmark interest rates. Fed fund rates currently sit at a 23-year high, with no immediate signs of relaxing.
What are the caps on student loan rates?
Fortunately, student loan interest rates will not keep rising forever. This is because the same law that ties them to Treasury yields also places a cap on those interest rates. Under current law, federal student loan interest rates are capped as follows:
- Undergraduate Direct loans capped at 8.25%.
- Graduate Direct loans capped at 9.50%.
- PLUS loans capped at 10.50%.
Federal student loan rates vs. private student loan rates
As federal student loan interest rates do not directly impact private student loan interest rates, you may conclude that a private student loan might be a better deal, but this will likely not be the case. Generally speaking, private student loans have higher interest rates than federal student loans.
For example, current private student loan interest rates range from 4% to 18%, while new federal Direct loans range from 6.53% to 8.08%, and PLUS loans are at 9.08%. Further, only the most creditworthy individuals qualify for the lowest rates on private student loans. Private student loans are available with both variable and fixed rates, while federal loans come with fixed rates only. And federal student loans do not require a credit check, except for PLUS loans.
TIME Stamp: Federal student loan rates continue to rise in 2024
As long as the Federal Reserve keeps raising rates to combat inflation, student loan rates will continue to rise annually. However, fixed-rate loans taken out this year will stay at this year’s rates for the life of the loan. The next rate increase won’t be until July 2025.
This will give students and families time to plan and budget. Although rates are expected to continue increasing, remember that there are rate caps. Also, it’s always possible that the Fed will meet or come close to its target rate of 2% inflation, at which time loan rates could start to decrease.
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