Federal student loan interest rates are set to decrease this summer after years of steady increases and record highs, making college slightly more affordable for student borrowers in the upcoming academic year. This rate change, effective July 1, will impact new federal loans for the 2025-26 academic year. Existing federal loan borrowers will not see a change in their fixed interest rates based on when the loan was originally borrowed.
The new 2025-26 federal student loan interest rates, as announced by the Education Department on May 30, are compared to the 2024-25 rates as follows:
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– Direct subsidized and unsubsidized loans for undergraduate students: 6.39%, down from 6.53%.
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– Direct unsubsidized loans for graduate students: 7.94%, down from 8.08%.
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– PLUS loans for parents and grad students: 8.94%, down from 9.08%.
The decrease in rates could save borrowers some money over the life of their loans, although the difference may be minimal. For example, taking out a $12,500 direct loan at the new 6.39% interest rate for the 2025-26 academic year would result in slightly lower total interest payments over a 10-year repayment term compared to the previous 6.53% rate.
All borrowers receive the same interest rate for each type of federal student loan in a given year, regardless of factors such as income or credit score.
The impact of these federal loan interest rate changes does not extend to private student loans, as private lenders determine their rates based on market conditions. While private loans may offer lower rates for borrowers with high credit scores, federal loans generally provide more borrower protections and repayment options.
To make college more affordable, it’s essential to minimize borrowing whenever possible. After completing the FAFSA, explore alternative strategies to limit borrowing, such as considering community college or in-state institutions, working part-time while in school, and making interest-only payments on unsubsidized loans during the academic term.