After the auction held on May 8th, we can now have an idea of the upcoming Federal Student Loan Interest Rates!
Beginning this fall, Federal Student Loan Interest Rates are going to rise quite notably for the upcoming academic year (2024-2025). These rates, which are fixed, will affect loans distributed from July 1 to June 30.
The rate for Federal student loans is determined by a formula linked to the high yield of the most recent 10-year Treasury Note auction held in May. With the auction held on May 8th, we can now have an idea of the upcoming interest rate.
2024 – 2025 Student Loan Interest Rates
Here are the updated interest rates for student loans during the 2024 – 2025 academic year:
- Undergraduate Direct Loans: 6.53%;
- Graduate Direct Loans: 8.08%;
- Grad PLUS Loans: 9.08%;
- Parent PLUS Loans: 9.08%.
Due to inflation and the Federal Reserve’s efforts to address it by raising interest rates, these rates have been steadily increasing for the last few years. For the 2024 – 2025 period, rates have climbed by more than 1% compared to the previous year. When you compare the upcoming fall rates to those before the pandemic, they’re nearly 20% higher.
How Are Federal Student Loan Rates Calculated?
These rates are calculated based on legislation passed by Congress. Here’s how they are determined:
- Undergraduate Direct Loans: the rate is set at the 10-year Treasury yield plus 2.05%;
- Graduate Direct Loans: 10-year Treasury yield plus 3.60%;
- Grad PLUS Loans: 10-year Treasury yield plus 4.60%;
- Parent PLUS Loans: 10-year Treasury yield plus 4.60%.
Although the student loan rates will keep going up as long as the Federal Reserve continues to raise rates to tackle inflation, it’s crucial to recognize that these loans have rate caps, even if interest rates keep climbing. Currently, undergraduate Direct loans are capped at 8.25%, graduate Direct loans at 9.50%, and PLUS loans at 10.50%.
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