U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United … [+]
The new rates for Federal student loans for the 2024 – 2025 school year are set to rise significantly this fall. Federal student loans all offer a fixed interest rate, and the new rate will apply to loans disbursed between July 1 and June 30.
Federal student loans rates are set based on a formula that uses the high yield from the last 10-year Treasury Note auction in May. That auction took place on May 8, which means that we can now calculate the student loan interest rate.
2024 – 2025 Student Loan Interest Rates
The new interest rates on student loans for the 2024 – 2025 academic year will be as follows:
Undergraduate Direct Loans: 6.53%
Graduate Direct Loans: 8.08%
Grad PLUS Loans: 9.08%
Parent PLUS Loans: 9.08%
There rates have been rising significantly over the last few years, mainly due to inflationary pressures and the Federal Reserve raising interest rates to combat it. The 2024 – 2025 rates are all over 1% higher than the previous year.
If you compare the rates for this fall to the rates pre-pandemic, they are almost 20% higher.
How Federal Student Loan Rates Are Calculated
Many borrowers are concerned about rising student loan interest rates, and wonder why the loan rates must be so high?
Student loan rates are calculated based on legislation passed by Congress. The law is as follows:
Undergraduate Direct Loans: 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%
If interest rates do continue to rise, it’s important to note that these loans do have rate caps. Currently, undergraduate Direct loans are capped at 8.25%, graduate Direct loans are capped at 9.50%, and PLUS loans are capped at 10.50%.
Final Thoughts
Student loan rates will continue to rise as long as the Federal Reserve is raising rates to combat inflation. However, since the 2025 – 2026 rates won’t be decided until next May, there is still time for rates to decrease.
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