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Student loans come with minimal fees, so interest is often the main cost you need to worry about when borrowing for school. Knowing where to get the lowest rates and how interest works can help you save big in both the long and short term. But watch out — saving on interest can sometimes result in high monthly repayments that are difficult to afford.
What interest rate you get varies depending on your level of education and whether you have federal or private student loans. Here’s what you can expect if you apply for a federal or private loan today.
| Type of loan | Current rate |
|---|---|
| Direct Subsidized Loans for undergraduates | 2.75% |
| Direct Unsubsidized Loans for undergraduates | 2.75% |
| Direct Unsubsidized Loans for graduate or professional students | 4.3% |
| Direct PLUS Loans for parents, graduate or professional students | 5.3% |
Private student loans come with fixed and variable rates that generally range from 3% to 12%, depending on your lender. Use the table below to see what rates top private student loan providers offer.
In general, interest is a percentage of your loan balance that you pay each year. The longer you take to pay back a loan, the more interest you’ll pay.
However, the way your student loan’s interest rate works depends on whether you have a fixed or variable rate and federal or private student loans.
Student loans can come with fixed or variable rates. Fixed rates stay the same over the lifetime of the loan, while variable rates can go up or down depending on what rates banks are charging their most creditworthy customers.
If you’re looking for predictable monthly repayments, fixed rates are the way to go. Variable rates are riskier, but have the potential to go lower than fixed rates.
Currently, federal student loans only come with fixed interest rates that Congress sets each year. Each type of loan comes with the same fixed rate for all borrowers.
For example, all undergraduate students pay a fixed rate of 2.75% on Direct Subsidized and Unsubsidized Loans. All graduate students pay a fixed rate of 4.3% on all Direct Unsubsidized Loans or 5.3% on Direct PLUS Loans. And all parents taking out a loan to pay for their child’s education pay 5.3% interest.
Federal rates have generally hovered around 5% and 6% over the past 20 years, though specific rates depend on the type of loan. In some cases it’s dipped as low as 3.4%, thanks to temporary legislation passed during times of economic crisis.
While interest rates are currently fixed now, student loans came with a variable rate based from 1992 to 2006, to better reflect the interest rates that came with other types of loans.
Private student loans are a little more complicated. Typically, you have a choice between fixed and variable rates when you apply. Unlike federal student loans, the rate you qualify for depends on your or your cosigner’s credit score, income, debt obligations and general financial health.
While rates vary by lender, private student loans typically come with higher interest rates than federal loans. That’s why the Department of Education and even many private lenders suggest that borrowers apply for federal loans before private financing.
The average student loan interest rate was 5.8% in 2017, according to a study by the think tank New America. However, that number drops to 4.2% for borrowers who have refinanced.
Since Congress has increased federal student loan interest rates since this study, the current average is likely higher.
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Your student loan interest rate is only part of what affects the cost of your loan. How much you pay also depends on the amount you borrow and your loan term. There are ways to reduce the cost of your education in every step of the borrowing process.
You’ll already be applying for scholarships, grants and work study programs when you fill out the FAFSA. But to cut down on the amount you have to borrow, consider applying for additional scholarships. Talk to your school’s financial aid office to find out what offers might be available to you.
As mentioned, federal student loans generally come with lower rates than most private lenders are able to offer. And getting a lower rate reduces how much you pay in interest.
Plus, you won’t have to apply with a cosigner since the government doesn’t consider your creditworthiness.
Generally, you have around six months after you drop below half time before you’re required to start paying off your student loans. Though you don’t have to do anything while you’re in school or during your grace period, making repayments on interest can save you a lot of money.
That’s because of something called interest capitalization. On most student loans, interest starts adding up as soon as your school gets the funds. Once you start making repayments, lenders typically add this interest to your loan balance. Not only will you be on the hook for a larger sum of money than you borrowed, you’ll also have to pay interest on a larger amount of funds.
Paying off interest as it adds up or even putting $25 toward your loans each month can help you avoid this.
Signing up for that 20-year loan term might give you the lowest monthly repayments, but you’ll end up paying a lot more in interest in the long run. To save, use our calculator below to find the shortest loan term that you can comfortably afford.
Lenders also typically offer at least a 0.25% rate discount if you sign up for autopay — an easy way to save on interest.
3 ways to lower your student loan interest rate
If you have private student loans, you can typically qualify for more favorable rates and terms by refinancing after you’ve worked for a few years and established a strong credit history. Refinancing also allows you to take a cosigner off your loan and adjust your loan term.
However, be careful about refinancing federal loans. That’s because you’ll lose access to benefits like flexible repayment plans and certain forgiveness programs.
Similar to private student loans, refinancing can come with fixed or variable rates. Many lenders offer both options. Use the table below to see what rates top refinancing providers offer.
Consolidating your federal student loans involves taking out a federal Direct Consolidation Loan. The interest rate on a Direct Consolidation Loan is a weighted average of the rates you’re currently paying on your federal loans. You can learn how to calculate your rate by checking out our article on how federal consolidation works.
Interest is one of the most important factors to consider when calculating the cost of going to college. Whether you have federal or private student loans — or both — there’s something you can do every step of the way to reduce how much you pay.
Read our guide to student loans to learn more about how they work and compare lenders.
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