Understanding student loan interest rates can be a complex business. Some student loans are have fixed interest rates (that means the rate stays the same over the life of your loan), while others have variable rates (that means the rate varies as interest rates increase or decrease).
Furthermore, the interest rates all depend on the type of loan. Around 90% of new student loans are now given by the federal government, according to our statistics.
Some are tied to the 10 year Treasury note, whereas others are tied to the prime interest rate. Currently, student loans interest rates are relatively low given that borrowing costs have been kept relatively low over the last few years. The Federal Reserve, for example, has been purchasing Treasury notes in an attempt to keep interest rates low and stimulate the economy. As student loan interest rates rise, this will make it more difficult for borrowers to repay their loans.
Generally, fixed interest loans are best when interest rates are low and you want to lock in a low rate over the course of your loan. In contrast, variable interest loans are best when interest is high and you want lower rates over the course of your loan. If you do have a student loan with high fixed interest rates, it is possible to refinance those loans at a lower rate later on.
New Student Loan Interest Rates
Federal Student Loan Interest Rates
Direct Loans (Subsidized & Unsubsidized)
The Current Rate: 4.45% (up from 3.76% last year) for undergraduates and 6.00% for graduate and professional students (up from 5.31% last year).
The Current Rate: Perkins loan are fixed at a 5% interest rate and don’t vary from year to year.
Parent Plus Loans
The Current Rate: 7.00% (up from 6.31% last year).
Grad PLUS Loans
The Current Rate: 7.00% (up from 6.31% last year)
Private Student Loan Interest Rates
The Current Rates: Private student loans typically have variable interest rates ranging from 2.50% - 13.00% and fixed rates ranging from 4.50% - 15.00%, depending on the lender and you and your cosigner's (if applicable) credit scores.Most of these loans require a co-signer, but there are some available without one.
Student Loan Refinancing Rates
Only private banks and lenders offer student loan refinancing. Like private student loans, interest rates are dependent on the lender and your creditworthiness, as well as your cosigner's if you have one. Variable rates typically range from 2.50% - 8.00% and fixed rates usually range from 3.20% - 8.50%.