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Student loan interest rates explained

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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.

Current student loan interest rates

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.

Federal student loan interest rates

Type of loanCurrent rate
Direct Subsidized Loans for undergraduates5.05%
Direct Unsubsidized Loans for undergraduates5.05%
Direct Unsubsidized Loans for graduate or professional students6.6%
Direct PLUS Loans for parents, graduate or professional students7.6%

Private student loan interest rates

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.

Rates last updated December 16th, 2018
Name Product Min. Credit Score Max. Loan Amount APR Product Description
Credible Private Student Loans
Good to excellent credit
Varies by lender
3.94% (As low as) (variable)
Get prequalified rates from private lenders offering student loans with no origination or prepayment fees.
EDvestinU Private Student Loans
675
$200,000
4.326% to 10.32% (fixed)
Straightforward student loans for undergraduate and graduate students.
CommonBond Private Student Loans
700
$500,000
3.20-7.25% (fixed)
Finance your college education through this lender with a strong social mission and terms that fit your budget.
LendingTree Student Loans
Good to excellent credit
Varies by lender
3% (As low as) (fixed)
Compare multiple student loans and student loan refinancing options in one place.

Compare up to 4 providers

How do student loan interest rates work?

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.

Fixed vs. variable rates

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 the rates that 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.

How federal student loan interest rates work

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 5.05% on Direct Subsidized and Unsubsidized Loans. All graduate students pay a fixed rate of 6.6% on all Direct Unsubsidized Loans or 7.6% on Direct PLUS Loans. And all parents taking out a loan to pay for their child’s education pay 7.6% interest.

How private student loan interest rates work

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.

What's the average student loan interest rate?

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.

How to pay less interest on your student loans

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.

When you apply for financial aid: Look into scholarships

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.

While you’re in school: Go federal before private

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.

While you’re in school and during your grace period: Start making small repayments

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.

When you start paying them back: Sign up for a shorter term and autopay

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.

After you’ve established a career path: Consider refinancing

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.

Compare student loan refinancing rates

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.

Rates last updated December 16th, 2018
Name Product Min. Credit Score Max. Loan Amount APR Product Description
Earnest Student Loan Refinancing Variable Rate (w/ autopay)
650
None
2.46% to 6.97% (variable)
Get a tailored interest rate and repayment plan with no hidden fees.
LendingTree Student Loans
Good to excellent credit
Varies by lender
3% (As low as) (fixed)
Compare multiple student loans and student loan refinancing options in one place.
SoFi Student Loan Refinancing Variable Rate (with Autopay)
650
full balance of your qualified education loans
2.470% to 6.990% (variable)
A leader in student loan refinancing, SoFi can help you refinance your loans and pay them off sooner.
Credible Student Loan Refinancing
Good to excellent credit
None
2.57%(As low as ) (variable)
Get prequalified offers from top student loan refinancing providers in one place.
PenFed Student Loan Refinancing
700
$300,000
3.75%–7.03% (fixed)
Straightforward refinancing with competitive rates.
Purefy Student Loan Refinancing
620
$300,000
2.82% to 8.42% (variable)
Refinance all types of student loans — including federal and parent PLUS loans.
Splash Financial Student Loan Refinancing
700
$300,000
3.75% (starting at) (variable)
Save on your student loans with this market-leading newcomer.

Compare up to 4 providers

Student loan consolidation rates

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.

Bottom line

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.

Frequently asked questions

Picture: Shutterstock

Anna Serio

Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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