Student Loan Interest Rates Hit 14-Year High

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Key Takeaways

  • Federal student loans made after July will carry the highest interest rates since 2010, with undergraduate loans charging 5.5% per year.
  • Rates are determined by yields on 10-year treasurys, which have been driven up by inflation concerns.
  • The SAVE repayment plan, which bases payments on income, takes some of the sting out of high interest rates.

Interest rates for all kinds of loans are at their highest in decades, and as of July, that will include federal student loans. 

The interest rates for student loans given out in the 2024-2025 academic year beginning in July will be the highest since 2010, the Department of Education said Tuesday.

The rates depend on the type of loan given out: subsidized undergraduate loans will have a rate of 5.5%, unsubsidized loans for graduate and professional school will have a 7.05% rate, and Parent PLUS loans will charge 8.05% interest. 

Why Did Student Loan Rates Increase?

The rates are determined by yields on 10-year Treasurys plus an add-on depending on the loan type. Treasury yields have been pushed up in recent years by investors’ concerns regarding high inflation, as well as the Federal Reserve’s campaign of anti-inflation interest rate hikes. 

Despite higher interest rates, changes to federal student loan repayment programs during President Joe Biden’s administration have pushed down monthly payments for many borrowers. For those enrolled in the new SAVE repayment plan, for instance, monthly payments are determined by the borrower’s income. 

Student loans are just one type of debt that’s become costlier due to the Federal Reserve raising its benchmark interest rate since March 2022.

The Fed has aimed to subdue inflation by discouraging borrowing and spending, allowing supply and demand to rebalance. Interest rates for mortgages, auto loans, and credit cards are also at or near their highest in decades, pressuring household budgets and contributing to a surge in credit card delinquency.