Education Dept. announces highest federal student loan interest rate in more than a decade

Personal finance

The US Department of Education sign hangs over the entrance to the federal building housing the agency’s headquarters in Washington, D.C., Feb. 9, 2024.
J. David Ake | Getty Images

The U.S. Department of Education announced Tuesday the interest rates on federal student loans for the 2024-2025 academic year.

The interest rate on federal direct undergraduate loans will be 6.53%. That’s the highest rate in at least a decade, according to higher education expert Mark Kantrowitz. The undergraduate rate for the 2023-2024 year is 5.5%.

For graduate students, loans will come with an 8.08% interest rate, compared with the current 7.05%. Plus loans for graduate students and parents will have a 9.08% interest rate, an increase from 8.05% now. Both of those rates haven’t been as high in more than 20 years, Kantrowitz said.

The rise in interest rates could complicate the Biden administration’s efforts to get the student loan crisis under control and relieve borrowers of the pain of interest accrual, experts say. Even as millions of people have benefited from recent debt relief measures, new students will be saddled with more expensive loans for decades to come.

The government sets interest rates on its education loans once a year. The rates, which run from July 1 to June 30 of the following year, are based in part on the May auction of the 10-year Treasury note.

This year, that Treasury yield has been on the rise while the Federal Reserve has kept interest rates high until inflation comes down. The May 8 auction put the high yield rate at 4.483%.

Which borrowers face higher rates 

All federal education loans issued on or after July 1, 2024, will be subject to the new rates.

Sorry, families: You can’t try to evade the rate increase by borrowing ahead of that deadline. Loans for the 2024-25 academic year must be taken out after July 1.

Don’t worry about loans you’ve taken out for previous academic years: most federal student loan rates are fixed, meaning the rates on those existing loans won’t change.

The rate changes apply only to federal student loans. Private loans come with their own — often higher — interest rates.

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