Federal student loan interest rates increase for the 2021-22 school year

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New federal student loan interest rates for the 2021-22 school year have been announced, and they’re higher than the historically low rates borrowers enjoyed in 2020-21. Starting July 1, 2021, federal student interest rates will go up nearly a full percentage point for Direct Subsidized, Direct Unsubsidized and Direct PLUS Loans.

If you’re planning to take out loans this upcoming school year, here’s how your student loans will be impacted.

Federal student loan interest rates will rise by almost 1 percentage point

Federal student loan rates are set by Congress every year based on the 10-year Treasury note. While each type of federal student loan has its own fixed interest rate, these rates are the same for all borrowers who take out that loan during the school year.

The 2020-21 school year had notably low rates as a result of the coronavirus pandemic. With a better economic outlook this year, federal interest rates have risen for the 2021-22 school year, although they still remain fairly low. The new interest rates for federal student loans are:

  • Direct Subsidized and Direct Unsubsidized Loans (undergraduates): 3.73 percent.
  • Direct Unsubsidized Loans (graduates and professionals): 5.28 percent.
  • Direct PLUS Loans (parents, graduates and professionals): 6.28 percent.

For comparison, here’s how the new interest rates stack up against those from previous school years.

Disbursement date Direct Subsidized and Unsubsidized Loans for undergraduates Direct Unsubsidized Loans for graduates and professionals Direct PLUS Loans
7/1/21–6/30/22 3.73% 5.28% 6.28%
7/1/20–6/30/21 2.75% 4.30% 5.30%
7/1/19–6/30/20 4.53% 6.08% 7.08%
7/1/18–6/30/19 5.05% 6.6% 7.6%
7/1/17–6/30/18 4.45% 6% 7%
7/1/16–6/30/17 3.76% 5.31% 6.31%
7/1/15–6/30/16 4.29% 5.84% 6.84%
7/1/14–6/30/15 4.66% 6.21% 7.21%
7/1/13–6/30/14 3.86% 5.41% 6.41%

Private student loan rates could rise as well

Private student loans don’t have one blanket interest rate like federal student loans do. Each private lender sets its own minimum and maximum interest rate, and the interest rate it offers to borrowers depends on the borrower’s credit score and history.

Because private lenders set their own interest rates, they’re not directly affected by yearly changes to federal student loan interest rates. However, private lenders do tie rates to overall market trends, so rates tend to change when federal rates do. This was true last year — as federal student loan rates dropped because of the pandemic, private student loan rates also dropped. The inverse is true as well: As the economy begins to recover in 2021, private student loan interest rates could start to rise.

How will the new interest rate impact your student loans?

The new federal student loan interest rate applies to loans disbursed from July 1, 2021, to June 30, 2022. This means that the new rates will apply only to new loans that you take out for the 2021-22 school year — any existing loans that you’ve taken out won’t be affected.

Federal student loan interest rates change every year, which means that when you graduate, you could have many different loans with many different interest rates, even if they were all the same type of loan.

For instance, if you borrowed student loans for every year of your four-year undergraduate degree, you could end up with at least four separate loans by the time you graduate. If you need to borrow multiple student loans for each year — like a Direct Unsubsidized Loan and a grad PLUS loan, for example — you could have even more loans tacked onto your final total.

Say you’re heading into your fourth and final year of school. Each year, you had to borrow $5,000 in undergraduate Direct Subsidized student loans to cover what grants and scholarships didn’t. After graduation, you’ll automatically start the 10-year Standard Repayment plan. Here’s how that works out in payments:

Year Interest rate Monthly payment at graduation
2021-2022 3.73% $49.98
2020-2021 2.75% $47.71
2019-2020 4.53% $51.89
2018-2019 5.05% $53.16

The difference between last year and this year equates to about $2 extra per month, or $24 extra per year. Over the course of 10 years, that’s $240 more.

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
Student loans editor