Current Student Loan Interest Rates and How They Work

The federal student loan interest rate for undergraduates is 2.75% for the 2020-21 school year. Federal rates for unsubsidized graduate student loans and parent loans are higher — 4.30% and 5.30%, respectively.

Private student loan interest rates can sometimes be lower than federal rates, but approval for the lowest rates requires excellent credit. If you have good credit, you may be able to refinance existing student loans to get a lower rate.

» MORE: How to calculate student loan interest

Current student loan interest rates

Rates updated monthly.

Federal student loan interest rates decreased for the 2020-21 school year and apply to loans disbursed between July 1, 2020, and July 1, 2021. The interest rate for all new federal direct undergraduate student loans decreased to 2.75%, down from 4.53% in 2019-20. Unsubsidized direct graduate student loan rates decreased to 4.30%, down from 6.08%. Rates for PLUS loans, which are for graduate students and parents, dropped to 5.30%, down from 7.08%.

Average student loan interest rate

The average student loan interest rate is 5.8% among all households with student debt, according to a 2017 report by New America, a nonprofit, nonpartisan think tank. That includes both federal and private student loans — about 90% of all student debt is federal.

With a 5.8% interest rate on $30,000 of student loans, a borrower would pay about $9,600 in interest throughout 10 years.

The average student loan interest rate is higher among some groups, according to the report. For instance, the average rate is 6.3% among households where the borrower didn’t complete a college degree, and 6.6% among households with incomes less than $24,000.

If you have multiple student loans with different rates, the weighted average interest rate is the rate you'll have if you consolidate the loans through the federal government. Federal consolidation won't lower your average interest rate, but refinancing with a private lender could.

» MORE: 7 ways to get the lowest student loan interest rate

Student loan interest rate calculator

How student loan interest rates work

Student loan interest rates work differently, depending on whether the loan is federal or private. For federal loans, every borrower taking out the same type of federal loan in a given year has the same interest rate. For private loans, borrowers with higher credit scores generally qualify for lower rates and borrowers with lower credit scores get higher rates.

Federal student loans:

• Congress sets interest rates yearly based on the 10-year Treasury note

• Most have fees charged as a percentage of the total loan amount

• Rates are fixed for the life of the loan

Private student loans:

• Interest rates are typically credit-based

• Most private lenders don't charge origination fees

• Borrowers can choose either a fixed or variable interest rate

• Variable rates are subject to change monthly or quarterly

» MORE: How Fed rate changes affect student loans

Key terms in this story

Fixed interest: An interest rate that does not change during the life of a loan. All federal student loans have fixed interest rates, but private loans can offer fixed or variable interest rates. Fixed interest is the safer option because you don’t have to worry about your rate — and payment — increasing.

Variable interest: Variable interest rates can change monthly or quarterly depending on the loan contract and come with rates caps as high as 25%. Variable interest loans are riskier than fixed interest loans, but can save you money if the timing is right.

Private student loan: Education funding from banks, credit unions and online lenders instead of the federal government. Private loans are best used to fill funding gaps after maxing out federal loans.