Federal Student Loan Rates Soften for 2025-26, Making Borrowing Slightly More Affordable

After years of steady increases and record highs, federal student loan interest rates will finally soften this summer — making college slightly more affordable for student borrowers in the upcoming academic year.

Here are the new 2025-26 federal student loan interest rates, according to a May 30 Education Department announcement, compared to 2024-25 rates:

• Direct subsidized and unsubsidized loans for undergraduate students: 6.39%, down from 6.53%.  

• Direct unsubsidized loans for graduate students: 7.94%, down from 8.08%.

• PLUS loans, available to parents and grad students to fill funding gaps: 8.94%, down from 9.08%. 

This rate change becomes effective July 1, and it only affects students who take out new federal loans for the 2025-26 academic year. If you're already repaying a federal student loan, your interest rate won't change — it's fixed based on when you originally borrowed.

How student loan interest rates impact college costs

Each May, the government sets federal student loan interest rates for the upcoming academic year based on the yield of the 10-year U.S. Treasury note and including an “add-on percentage.” The result becomes the interest rate for new loans issued between July 1 and June 30 of the following academic year.

Here’s how that works in practice. The latest 10-year Treasury note yield was 4.342%, and the add-on percentage for direct undergraduate loans is 2.05%. Add the two together to get the new interest rate for direct undergraduate loans: 6.392%, rounded down to 6.39%.

The lower rates could save you money over the life of your loan — but not much.

For example, let’s say you take out a $12,500 direct loan, which is the maximum amount an undergraduate can borrow in a single year. At the previous 2024-25 interest rate of 6.53%, you’d pay about $4,555 worth of interest over a 10-year repayment term. That same loan taken out in 2025-26 at the new 6.39% interest rate costs you $4,448 over 10 years. It’s a small difference, but still dollars saved.

Use a student loan repayment calculator to see how interest could add up for your specific loan amount and type.

All borrowers get the same interest rate for each type of federal student loan in a given year, regardless of factors like income or credit score.

What about private student loan interest rates?

This news does not directly impact private student loans. Lenders set their interest rate ranges based on market conditions. Private student loans can come with fixed rates, like federal loans, or variable interest rates, which can change during repayment.

If you or a co-signer has a credit score at least in the high 600s, you might qualify for a lower interest rate with a private loan than a federal loan. Still, federal loans are a better choice for most borrowers, because they come with generous borrower protections, including income-driven repayment plans, payment relief programs and student loan forgiveness opportunities, like Public Service Loan Forgiveness. Private loans don’t offer these same features.

Generally, borrowers should only think about taking out private student loans if they still have cost gaps after they take out the maximum possible amount in federal student loans. Compare offers from multiple lenders to find the lowest interest rate.

Minimize borrowing to make college more affordable

Lower interest rates can make your college debt feel more manageable. Even so, you should do everything you can to minimize borrowing in the first place.

Start by submitting the 2025-26 Free Application for Federal Student Aid (FAFSA). This form unlocks not only federal student loans, but also free aid that you don’t need to repay — like need-based Pell Grants (up to $7,395 per year), work-study and scholarships.