Student Loan Interest Rates for 2023
College is expensive, and it’s only getting worse. The total United States student loan debt is at more than $1.7 trillion. The average public university student borrows about $26,000 for a bachelor’s degree. And 43.6 million borrowers have federal student loan debt, according to 2023 figures.
Like most loans, student loans accrue interest. This article will look at current interest rates among the most common student loan products, including federal and private student loans.
The State of Federal Student Loans
The Supreme Court on June 30 rejected President Joe Biden’s $400 billion plan to cancel or reduce student loan debt for millions of Americans. After a three-year pandemic pause on payments, federal student loans will start accruing interest Sept. 1 and payments will restart in October.
When we discuss federal interest rates on student loans in this article, we’re referring to what the rates would be when the freeze is lifted.
Comparing Rates Between Federal, Private and Refinance Loans
When you’re evaluating student loan options, you may notice there is more interest rate variability when it comes to private student loans versus federal. But it’s important to note that the lowest interest rates are very difficult to get — your credit needs to be outstanding.
It’s also important to note the difference between fixed and variable interest rates on private student loans. While variable interest rates can look more appealing, they also can change over time, meaning you won’t necessarily be paying the same interest rate that you started with throughout the course of the loan. When doing your research, remember to evaluate the trade-offs of every loan — if you find a low interest rate on a variable loan, don’t expect to pay that forever. Likewise, if your credit score is low, don’t anticipate that you’ll qualify for the best interest rates. Federal student loans can be a safer option if you want to know exactly what you’re getting and how it works.
Federal Loan Interest Rates at a Glance
These interest rates are valid on or after July 1, 2023, and before July 1, 2024.
Federal Loan Interest Rates at a Glance
| Loan Type | Borrower | Fixed Interest Rate | Loan Fee | |
|---|---|---|---|---|
Direct Subsidized and Direct Unsubsidized Loans |
Undergrad students |
5.50% |
1.057% |
|
Direct Unsubsidized Loans |
Graduate or professional students |
7.05% |
1.057% |
|
Direct PLUS Loans |
Parents and graduate or professional students |
8.05% |
4.228% |
There are two types of federal student loans: subsidized and unsubsidized. The two differ based on when interest starts to accrue.
- Subsidized student loan: While you are enrolled at least half-time in school, the Education Department pays interest on the loan, meaning you do not. (There also isa grace period and an optional time of deferment in which you do not have to pay interest if you qualify.)
- Unsubsidized student loan: Interest begins to accrue as soon as the loan is dispersed.
Direct subsidized loans are available to undergraduate students with financial need — the amount that can be borrowed is determined by the demonstrated financial need. Unsubsidized loans, on the other hand, are determined by the cost of attendance of your school and any other financial aid you receive.
The last thing to cover with federal loans is the loan fee (also known as the origination fee). The fee comes from the lender as a payment for processing the loan. Instead of being paid upfront at the beginning of the loan term, the fee is a percentage of the total loan amount that is then deducted automatically from each disbursement. In practice, this means you’ll receive a smaller loan than the amount you actually borrowed.
Private Loan Interest Rates at a Glance
These rates are valid as of July 2023.
Private Loan Interest Rates at a Glance
| Loan Type | Interest Rates | |||
|---|---|---|---|---|
Fixed rate |
3.65% to 15.99% |
|||
Variable rate |
5.29% to 16.33%% to 15.70% |
The wide variation in interest rates is due to two factors: different lenders offering different rates, and the fact that the rate you’ll get is impacted by your credit and other factors. Different lenders have different benefits — some, like Sallie Mae, are good for part-time students, while others, like Ascent, might be a good fit if you don’t need a cosigner.
There’s a reason fixed interest rates are called fixed: your interest rate won’t change over the course of your loan. Although that might mean you choose a higher rate from the outset, it also means you know what you’ll pay throughout the trajectory of your loan. Variable rate loans are the opposite.
Loan Refinance Interest Rates at a Glance
These are valid as of July 2023.
Loan Refinance Interest Rates at a Glance
| Loan Type | Interest Rates | |||
|---|---|---|---|---|
Fixed rate |
4.74% to 10.99% |
|||
Variable rate |
4.99% to 12.01% |
If you’re not happy with your interest rate and you have a good credit score, you may want to consider refinancing your existing student loan. This is not always possible, but it can be an option worth exploring. These refinanced interest rates can be lower than “normal” private rates..
How Student Loan Interest Rates Are Determined
Although federal and private loans are technically different, they often follow similar trends. In other words, when federal student loan interest rates go up, private rates are likely to do the same. The same is true when they go down. Let’s look at what actually goes into determining federal and private interest rates.
Federal Student Loan Interest Rates
Federal rates are set in the spring by Congress, “based on the high yield of the last 10-year Treasury note auction in May,” according to loan aggregator Bankrate. The new rate applies to loans disbursed from the following July 1 to June 30.
Federal student loan rates are fixed in every sense of the word — they don’t change throughout the life of the loan and the same rate is offered to every borrower, regardless of situation. This can change if you choose to refinance your loan. Roughly 92% of student loan debt is federal, according to Bankrate, showing the vast majority of borrowers decide to go this route.
Private Student Loan Interest Rates
These loans are funded by banks, credit unions and other private lenders. As such, interest rates vary among lenders, and it’s a good idea to research the best interest rates before choosing a loan.
Private lenders usually offer both fixed- and variable-rate loans. Fixed-rate means your interest rate remains the same over the life of the loan.
A variable interest rate, on the other hand, means your interest rate can fluctuate with the market. Sometimes you can get lucky and have your rate go down for a period of time. However, the risk with variable-rate loans is that the interest rate can go up significantly, and you’ll end up paying more than anticipated.
It’s important to keep this in mind when selecting a loan. It may be worthwhile to take a slightly higher fixed interest rate rather than assume the risks of a variable rate.
The Pros and Cons of Federal Student Loans vs Private Student Loans
Let’s explore the pros and cons of the two major classes of student loans — federal and private. The decision to choose one or the other depends largely on the most important factors for you.
Federal Student Loans
Pros
- Flexible repayment plans. Federal loans are eligible for income-based repayment plans and loan forgiveness. These can be a huge help if you find yourself in a tough financial spot.
- Much lower requirements. It’s almost always much easier to qualify for a federal loan than it is a private student loan, particularly if you want a good interest rate.
- More affordable overall. Most of the time you’ll end up paying less on federal student loans than on a private student loan.
Cons
- Origination fees. Federal student loans are subject to small origination fees, which aren’t part of a private student loan. This means your loan disbursements are usually going to be smaller.
- Borrowing limits for undergraduates. This means some students may actually need to take out a small private loan in addition to the federal loan to cover their full college costs.
- Can’t choose your loan servicer. Federal student loans are turned over to a loan servicer to handle the payments and administration of that loan. Some of them have less-than-stellar reputations
Private Student Loans
Pros
- Larger loans. If you know that you’ll need a certain amount of money and it’s more than federal loans can offer, it might make more sense to simply go private.
- Potentially lower rates. A private loan may have lower rates, particularly with student loan refinancing. That said, you’ll need an excellent credit score to get the lowest rates.
- No origination fees. Most private student loans don’t have the origination fees that come with federal student loans, but it’s important to note that some do, especially specialty loans.
Cons
- More difficult to qualify for. Private loans have stricter requirements, particularly around credit histories. Federal student loans are almost always easier to qualify for.
- Generally higher interest rates. Unless your credit is outstanding, you’ll almost always get a better interest rate with a federal student loan.
- Less flexibility in repayment options. Some private lenders are willing to work with borrowers on this, but there’s no law or regulation forcing them to, and thus, no guarantee.
Frequently Asked Questions (FAQs) About Student Loan Interest Rates
If you still have questions about student loan interest rates, don’t worry — we’ve got answers. Here are some of the most common questions.
Student loan interest rates range from a low of 4.49% to a high of almost 16%. The rates depend on whether you’re looking at federal or private, which type of loan, which private lender you go with, your credit history and more.
That said, here’s the quick bullet list:
- Federal direct for undergraduate students: 5.50%
- Federal unsubsidized for grad students: 7.05%
- Federal Direct PLUS for parents and graduate students: 8.05%
- Private fixed-rate loans: 3.65% to 15.99
- Private variable-rate loans: 5.29% to 16.33%
This is a hard question to answer, but signs point to yes. Based on statements from the Federal Reserve and the upward trend, rates seem poised to rise again. For the 2022-23 school year, federal rates did increase by more than a percentage point for the third year in a row.
A subsidized federal student loan is one in which interest is paid by the U.S. Department of Education Department while you’re enrolled at least half-time in college. Subsidized student loans have a six-month grace period after graduating. During this time, no payments are due, and the Education Department continues to pay the interest on the loan.
An unsubsidized loan, on the other hand, begins accruing interest immediately upon disbursement, even if you’re still enrolled in school. The student is responsible for interest. Unsubsidized loans still have a six-month grace period after graduation before payments are required, but interest continues to accrue during this time. The interest then capitalizes, which means it’s added to the original loan amount.
Subsidized student loans have a six-month grace period after graduating. During this time, no payments are due, and the Education Department continues to pay the interest on the loan.
An unsubsidized loan, on the other hand, begins accruing interest immediately on disbursement, even if you’re still enrolled in school. The student is responsible for this interest. Unsubsidized loans still have a six-month grace period after graduation before being required to make payments, but interest continues to accrue during this time. The interest then capitalizes, which means it gets added to the original loan amount.
Federal student loan rates are set each spring and go into effect July 1, running until June 30 of the following year. At that point, the new interest rate will take effect. This year, after a lengthy pandemic-related pause, loans begin accruing interest Sept. 1.
Student loan refinancing is a way to decrease the amount of interest paid on your loan. Essentially, when you refinance the new lender pays off your existing loan and gives you a new one with new terms.
Not everyone can refinance — there are fairly strict rules to evaluate your credit and income to determine eligibility. Additionally, you generally reset the length of your loan term when you refinance, so it can sometimes end up costing more money.
And although you can refinance a federal loan, you lose the extra benefits they come with, including income-based repayment options.
Not everyone can refinance — there are fairly strict rules to evaluate your credit and income to determine eligibility. Additionally, you generally reset the length of your loan term when you refinance, so it can sometimes end up costing you more money.
Finally, while you can refinance a federal loan, you lose the extra benefits they come with, including income-based repayment options.
This is a special repayment option available to federal borrowers that lets you tailor your monthly payments to your income. These plans are typically based on a percentage of your monthly disposable income and can be quite a bit lower than you’d otherwise pay. The tradeoff is that it can take much longer to pay off the loan.
Additionally, loans on these repayment plans are automatically forgiven after 20-25 years of payments.
Penny Hoarder contributor Dave Schafer has been writing professionally for nearly a decade, covering topics ranging from personal finance to software and consumer tech.
Writer Elizabeth Djinis is a contributor to The Penny Hoarder, often writing about selling goods online through social platforms. Her work has appeared in Teen Vogue, Smithsonian Magazine and the Tampa Bay Times.
Freelancer Lauren Richardson contributed to this post.
