After years of stable and record highs, federal student loan rates will finally soften this summer, making the university slightly more affordable for student borrowers in the coming grades.
According to a May 30th Education Division announcement, the interest rates for the new 2025-26 federal student loans compared to the 2024-25 rate are as follows:
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 Loan, down from 8.94%, 9.08%, which parents and alumni can use to close the funding gap.
This rate change will take effect on July 1st and will only affect students receiving new federal loans for the 2025-26 grade. If you have already paid back your federal student loan, your interest rate will not change. It is fixed based on the original borrowing.
How student loan interest rates affect university costs
Each May, the government will set the interest rate on federal student loans for the next academic year, based on the yield on the US Treasury’s 10-year bonds, including “add-on percentages.” The result is the interest rates for new loans issued between July 1st and June 30th of the next grade.
This is how it actually works. The latest 10-year Treasury yield is 4.342%, with the add-on rate for direct undergraduate loans at 2.05%. Add the two together to get new interest rates directly on your undergraduate loan. Rounded to 6.392%, 6.39%.
A lower fee could save you money over the lifespan of your loan, but not so much.
For example, let’s say you get a direct loan of $12,500. This is the maximum amount that an undergraduate can borrow in a year. At the previous 2024-25 interest rate of 6.53%, you’ll pay about $4,555 worth of interest over the 10-year repayment period. The new 6.39% interest rate will cost $4,448 over 10 years from 2025 to 2026. That’s a small difference, but it still saves dollars.
Use a student loan repayment calculator to see how interest is added to a particular loan amount and type.
All borrowers will obtain the same interest rate for each type of federal student loan in a given year, regardless of factors such as income or credit score.
What about private student loan interest rates?
This news does not directly affect private student loans. Lenders set interest rate ranges based on market conditions. Private student loans come with fixed interest rates, such as federal loans and variable rates, which may change during repayment.
If you or your co-signer has at least a credit score in the 600s, you may qualify for a lower interest rate on private loans than federal loans. Still, federal loans are a better option for most borrowers. Because they involve generous borrowers protection, including income-driven repayment plans, payment relief programs, and student loan forgiveness opportunities such as public service loan forgiveness. Private loans do not offer these same features.
In general, borrowers should consider taking private student loans only if there is still a cost gap after taking out the largest possible amount on federal student loans. Compare offers from multiple lenders to find the lowest interest rate.
Minimize borrowing to make universities more affordable
Lower interest rates make university debt more manageable. Still, you need to do everything you can to minimize borrowing in the first place.
Start by submitting a 2025-26 free application for Federal Student Aid (FAFSA). The form will lift not only federal student loans but also free aid that means you don’t have to pay them back.
After filing your FAFSA, consider other strategies to limit your borrowing. Consider all post-secondary options and compare financial aid letters. Community colleges or in-state agencies may be much more affordable than private or out-of-state schools. While at school, I receive part-time jobs to cover my daily expenses. If you take away your unsubsidized student loan, you will only pay a small interest payment to reduce future bills while you are at school.
Eliza Haverstock writes for Nald Wallet. Email: ehaversstock@nerdwallet.com. Twitter: @elizahaversstock.
The federal student loan fees in the article have been softened between 2025-26 and are now available at a slightly more affordable price on nerdwallet.
Original issue: June 2, 2025, 1:26pm EDT
