Student loans can be a useful way to fill financial gaps in paying for higher education expenses. However, borrowing money for school comes at a cost, particularly in the form of interest rates.
According to a January 2020 national survey by the Bipartisan Policy Center, 55 percent of respondents said that they didn’t know the interest rate on their student loan.
Student loan interest rates determine how much money you’ll ultimately owe, so it’s important to know what your interest rate is and how it affects your loans. Here’s an overview of historic and current student loan rates and what you need to know about how student loan interest works.
Depending on the kind of student loan you have or are looking to get, interest rates vary.
| Loan type |
Borrower
|
Fixed interest rate
|
Loan Fee
|
|---|---|---|---|
| Direct Subsidized Loans and Direct Unsubsidized Loans |
Undergraduate students
|
4.53%
|
1.059% for loans first disbursed on or after October 1, 2019, and before October 1, 2020
1.062% for loans first disbursed on or after October 1, 2018, and before October 1, 2019 |
| Direct Unsubsidized Loans |
Graduate or professional students
|
6.08%
|
1.059% for loans first disbursed on or after October 1, 2019, and before October 1, 2020
1.062% for loans first disbursed on or after October 1, 2018, and before October 1, 2019 |
| Direct PLUS Loans |
Parents and graduate or professional students
|
7.08%
|
4.236% for loans first disbursed on or after October 1, 2019, and before October 1, 2020
4.248% for loans first disbursed on or after October 1, 2018, and before October 1, 2019 |
Source: The U.S. Department of Education
| Lender |
Fixed APR*
|
Variable APR
|
|---|---|---|
| College Ave |
3.98% to 11.98%
|
1.79% to 10.97%
|
| CommonBond |
5.33% to 9.74%
|
3.21% to 9.29%
|
| Earnest |
Starts at 4.39%
|
Starts at 2.74%
|
| LendKey |
Starts at 4.86%
|
Starts at 3.10%
|
| SoFi |
4.41% to 11.76%
|
1.73% to 11.00%
|
* Includes autopay discount
| Lender |
Fixed APR*
|
Variable APR
|
|---|---|---|
| College Ave |
4.64% to 8.99%
|
1.79% to 10.97%
|
| CommonBond |
3.38% to 6.45%
|
3.38% to 5.64%
|
| Earnest |
Starts at 4.25%
|
Starts at 3.50%
|
| LendKey |
Starts at 3.39%
|
Starts at 2.70%
|
| SoFi |
Starts at 4.25%
|
Starts at 3.50%
|
* Includes autopay discount
Since federal student loan rates change periodically, a historical overview of federal loan rates is helpful to gauge average student loan rates.
| Loan first disbursed |
Undergraduate Direct Subsidized Loans
|
Undergraduate Direct Unsubsidized Loans
|
Graduate or Professional Direct Unsubsidized Loans
|
Direct PLUS Loans
|
|---|---|---|---|---|
| July 1, 2019 – June 30, 2020 |
4.53%
|
4.53%
|
6.08%
|
7.08%
|
| July 1, 2018 – June 30, 2019 |
5.05%
|
5.05%
|
6.60%
|
7.60%
|
| July 1, 2017 – June 30, 2018 |
4.45%
|
4.45%
|
6.00%
|
7.00%
|
| July 1, 2016 – June 30, 2017 |
3.76%
|
3.76%
|
5.31%
|
6.31%
|
| July 1, 2015 – June 30, 2016 |
4.29%
|
4.29%
|
5.84%
|
6.84%
|
| July 1, 2014 – June 30, 2015 |
4.66%
|
4.66%
|
6.21%
|
7.21%
|
| July 1, 2013 – June 30, 2014 |
3.86%
|
3.86%
|
5.41%
|
6.41%
|
| July 1, 2012 – June 30, 2013 |
3.40%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2011 – June 30, 2012 |
3.40%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2010 – June 30, 2011 |
4.50%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2009 – June 30, 2010 |
5.60%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2008 – June 30, 2009 |
6.00%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2007 – June 30, 2008 |
6.80%
|
6.80%
|
6.80%
|
7.90%
|
| July 1, 2006 – June 30, 2007 |
6.80%
|
6.80%
|
6.80%
|
7.90%
|
Source: The Federal Register
Student loan interest is calculated using a simple daily interest formula. To calculate your interest, your lender multiplies your student loan rate by your remaining principal balance. Then this figure is multiplied by the number of days since you made your last loan payment. The final result is how much student loan interest you’ll be charged on top of your principal loan payment.
Typically, your monthly payments will cover any interest accrued. However, in some cases, such as deferment, unpaid student loan interest may be capitalized — meaning that the unpaid interest is added to your principal balance, causing you to pay interest on your interest.
For federal subsidized loans, the government pays your interest charges for you while you’re in school at least half-time, during your grace period and while you’re in deferment. The amount you’ll owe once your loan is in repayment will include only your original principal balance, loan fees and interest accrued moving forward.
Unsubsidized federal loans and private student loans may offer in-school deferment and a grace period. However, during this time, interest charges accrue immediately after funds are disbursed. If you choose to hold off on making loan or interest-only payments until later, your student loan interest capitalizes.
Student loan interest rates can either be fixed or variable. Fixed interest rates don’t change over your loan term, so you’ll know upfront how much your total cost to borrow will be and what your monthly payments will look like. Federal student loans always offer fixed interest rates.
Private lenders can offer fixed or variable private student loans. Variable interest rates change based on market conditions, so your monthly payment may increase or decrease at any time. If you're considering a variable-rate loan, you'll have to decide if the potential for lower rates is worth the unpredictability.
An interest rate is how much it costs to borrow money from a lender. Interest rates are expressed as a percentage. For each of your loan payments, you'll be charged a portion of your principal (or loan amount), plus an extra amount based on that percentage. The higher your interest rate, the more money you’ll pay during your repayment period.
An annual percentage rate (APR) on a loan is the combined cost of a loan. This percentage includes your interest rate and any fees charged by the lender. Loan fees can include origination fees, application fees and processing fees.
Since the APR includes finance charges and all fees you’ll be charged on the loan, it’s the most representative figure of how much you'll pay over the life of your loan.
