Student loan interest rates in September 2021

Student loans can be a useful way to fill in financial gaps when paying for higher education expenses, but they come with a cost. 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.

Federal student loan interest rates range from 3.73 percent to 6.28 percent depending on your degree, while private student loan interest rates range from 1 percent to 13 percent and are based on your credit score.

Here’s an overview of historic and current student loan rates and what you need to know about how student loan interest works.

Summary: The Bankrate student loan interest rate guide

• Current student loan interest rates
• How are student loan interest rates set?
• How has the coronavirus impacted student loan interest rates?
• How will student loan rates change in 2021?
• How to calculate student loan interest
• The difference between subsidized and unsubsidized student loans
• The difference between fixed and variable rates
• How can I reduce my student loan interest rate?

Current student loan interest rates

Depending on the kind of student loan you have or are looking to get, interest rates vary. About 90 percent of student loan debt is comprised of federal loans, with interest rates ranging from 3.73 percent to 6.28 percent. Average private student loan interest rates, on the other hand, can range from 1.49 percent to 12.99 percent fixed and 0.99 percent to 11.98 percent variable. While federal student loan rates are the same for every borrower, private student loan rates vary widely based on the lender, the type of interest rate (fixed or variable) and the borrower's credit score.

Federal student loan interest rates

Source: The U.S. Department of Education

Private student loan rates (graduate and undergraduate)

*Includes autopay discount

Compare lenders: Private student loan rates

Refinance student loan interest rates

*Includes autopay discount

Compare lenders: Refinance student loan rates

Average student loan rates

Federal student loan rates change every year. Here's a historical overview of how average student loan rates have evolved.

Source: The Federal Register

How are student loan interest rates set?

Federal student loan interest rates and private student loan interest rates are closely related; when federal student loan rates drop, private student loan rates are likely to follow. This is because both types of loans tend to follow larger economic market trends.

Federal student loan interest rates

Each spring, student loan interest rates are set by Congress based on the high yield of the last 10-year Treasury note auction in May. New rates apply to student loans disbursed from July 1 to June 30 of the following year. Federal loans are fixed, meaning that the rate will not fluctuate for the life of the loan. The interest rate you receive on a federal student loan is not determined by your credit score or financial history.

Interest charges differ between subsidized and unsubsidized loans. 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.

With federal unsubsidized loans, interest charges start accruing immediately after funds are disbursed. If you choose to hold off on making loan payments until later, the accumulated student loan interest gets added to your principal balance when the loan enters repayment.

With that said, interest rates on federal student loans are temporarily set to zero through Jan. 31, 2022, due to impacts of the coronavirus pandemic.

Private student loan interest rates

Private student loans are funded by banks, credit unions and online lenders, so interest rates vary from lender to lender. Many private student loan lenders offer both fixed and variable rates, so your interest rate could fluctuate over the life of the loan if you choose a variable-rate option.

Most student loan lenders set rates based on the Libor or the prime rate. However, while rates are tied to this benchmark, private lenders also typically evaluate your credit score, income and financial history to determine your interest rate. Generally, the better your financial health and credit score, the lower your interest rates will be. In order to access this information, many lenders will run a hard credit inquiry, which can knock your credit score down a few points – although you can usually get a preview of your rates and terms with only a soft credit check.

How has the coronavirus affected student loan interest rates?

With the U.S. economy in a state of upheaval due to the coronavirus pandemic, interest rates have fallen to near-record lows for many financial products. Student loans are no exception; when the Fed cut interest rates in spring 2020, many private student loan companies lowered their interest rates on both fixed and variable products. Federal student loan rates for the 2020-21 and 2021-22 school years are some of the lowest rates in over a decade.

"For borrowers of all types, including student loans, we remain in an environment where rates remain remarkably low," says Mark Hamrick, Washington Bureau Chief and senior economist for Bankrate. Student loan interest payments on federal student loans are also waived through Jan. 31, 2022.

How will student loan rates change in 2021?

The low student loan interest rates brought on by the coronavirus are expected to stay, at least for a few years. "If the trajectory of the economy is as many expect over at least the next couple of years, we may eventually see some rates begin to rise off of these lows," says Hamrick. "Even so, Federal Reserve officials have essentially pledged to leave their benchmark rates at record low levels in order to help the economy to heal after the pandemic and to boost employment."

Federal student loan rates for the 2021-22 school year are higher than they were for the 2020-21 school year; however, they are still low compared to pre-pandemic levels.

The Biden presidency's affect on student loans

While the president has no say in student loan interest rates, Biden has been seeking other ways to make college more affordable for students — and reduce the need for student loans altogether. Most recently, he has suggested offering two years of free community college for all students, as well as two years of subsidized tuition for low-income students attending historically Black colleges and universities, tribal colleges and universities and minority-serving institutions.

He has also been exploring avenues of forgiving existing student loan debt. However, any student loan forgiveness measures would likely apply only to federal student loans.

How to calculate student loan interest

Calculating your student loan interest can help you determine your monthly budget. To calculate how much interest you pay each month, use the following steps:

1. Find your daily interest rate. Divide your annual interest rate by 365.
2. Determine your daily interest accrual charge. Multiply your daily interest rate by your remaining principal balance.
3. Calculate your monthly payment. Multiply that daily interest accrual by the number of days in your billing cycle.

Let's say you're charged 5 percent interest on your $10,000 loan every month. Here's what those steps look like:

1. 0.05 (annual interest rate) / 365 = 0.000137
2. $10,000 (principal balance) x 0.000137 = 1.37
3. 1.37 x 30 (number of days in billing cycle) = $41.10

In this scenario, you'll pay $41.10 in interest each month.

Keep in mind that some private loans do carry a variable rate, so the daily interest rate may fluctuate over the life of the loan, typically on a monthly, quarterly or annual basis. You can also use a student loan calculator to calculate your monthly interest charge.

Learn more: How to calculate student loan interest

The difference between subsidized and unsubsidized student loans

Federal student loans can be either subsidized or unsubsidized. The primary difference between the two options is the way you'll pay the interest, your total debt after graduation and your repayment plan.

Direct Unsubsidized Loans:

• Who pays interest costs? The borrower.
• What's the lifetime maximum limit? $31,000 for dependent undergraduate students, $57,500 for independent undergraduate students and $138,500 for graduate or professional students.
• Do you need to demonstrate financial need? No.
• Who can borrow? Undergraduate students, graduate students and professional degree students.
• Are there extra costs involved? 1.057 percent fee for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2022.

Direct Subsidized Loans:

• Who pays interest costs? The U.S. Department of Education pays interest while the student is enrolled in school at least half time, during the six-month post-graduation grace period and during deferment. The borrower pays interest during regular repayment periods.
• What's the lifetime maximum limit? $23,000.
• Do you need to demonstrate financial need? Yes.
• Who can borrow? Undergraduate students.
• Are there extra costs involved? 1.057 percent fee for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2022.

Learn more: The difference between subsidized and unsubsidized student loans

The difference between fixed and variable rates

Student loan interest rates can be either 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. Variable interest rates change based on market conditions, so your monthly payment may increase or decrease periodically.

Learn more: Fixed- vs. variable-rate student loans

How can I reduce my student loan interest rate?

If you're looking to minimize your student loan interest rate, you have a few options:

• Improve your credit score before applying: If you're applying for a loan from a private lender, you'll likely go through a credit check to determine your rate. The better your credit score, the lower rate you'll receive.
• Apply with a co-signer: Many student loan borrowers don't have much credit to their name; if this is your situation, you may want to add a co-signer to your loan. Adding a co-signer with good credit will improve your creditworthiness and could help you get lower rates.
• Choose a variable rate: It's risky, but choosing a variable rate over a fixed one could cause your interest rate to drop during economic downturns. However, keep in mind that you also take on the risk of your interest rate rising.
• Refinance old loans: If you took out a student loan when interest rates were high, you may be able to refinance into a lower interest rate. This is especially true if you have a better credit score now than when you first applied. Just remember that if you refinance a federal student loan, you'll lose benefits like coronavirus forbearance and income-driven repayment plans.

Next steps

If you're considering taking out a student loan, the best way to find a good interest rate is to shop around with multiple lenders. It's usually best to start your search with federal student loans, especially now that interest rates are at historic lows, but private student loans are a good way to supplement. While you will be charged higher interest rates if your credit score needs work, there are lenders that cater specifically to borrowers with bad credit.

Learn more:

• The best student loans
• If you have a student loan, here’s what happens when the Fed lowers rates
• How to calculate student loan interest in 3 easy steps