Every May, an obscure Treasury auction happens that most Americans never hear about. The U.S. government sells 10-year Treasury notes. Investors bid. A yield is set. And that yield, from that single auction, determines the interest rate on every new federal student loan for the next twelve months.
In May 2025, the high yield came in at 4.342%. Congress added a fixed margin on top. And just like that, millions of students who would borrow between July 2025 and June 2026 found out the cost of their education debt: 6.39% for undergrads, 7.94% for grad students, 8.94% for parents.
You had no say in it. Your credit score didn't matter. Your GPA didn't matter. The rate was set by a formula written into law in 2013. Here's how it works and what it means for your money.
The 30-Second Version: Federal student loan rates are fixed each year based on the 10-year Treasury yield plus a statutory add-on. For 2025-26: 6.39% (undergrad), 7.94% (grad), 8.94% (PLUS). Private rates range from ~2.84% to 17.99% based on credit. Your credit score doesn't affect federal rates, but it determines everything about private rates.
How Federal Rates Are Calculated
Since 2013, the Bipartisan Student Loan Certainty Act ties federal loan rates to the 10-year Treasury note. The formula:
10-Year Treasury High Yield (May auction) + Add-on = Your Rate
| Loan Type | Treasury Yield (May 2025) | Add-on | Rate |
|---|
| Undergraduate Direct | 4.342% | +2.05% | 6.39% |
| Graduate Direct | 4.342% | +3.60% | 7.94% |
| PLUS (Parent/Grad) | 4.342% | +4.60% | 8.94% |
The add-on percentages are set by law. Congress can change them, but they haven't since 2013. The only variable that moves year to year is the Treasury yield.
Once your loan is disbursed, that rate is locked for life. Borrow at 6.39% in September 2025? Still 6.39% when you make your last payment in 2035. Federal rates are always fixed.
This is actually a decent deal in the context of history. Rates for undergrads have ranged from 2.75% (2020-21, the pandemic low) to 6.53% (2024-25) over the past six years. The 2025-26 rate of 6.39% represents a small dip from the prior year.
The Hidden Fee Nobody Reads About
Your interest rate isn't your only cost. Federal loans charge origination fees, deducted from each disbursement before the money reaches your school.
- Direct Subsidized/Unsubsidized: 1.057%
- PLUS Loans: 4.228%
Here's what that looks like in practice. A student borrows $10,000 in a Direct Unsubsidized Loan. The fee: $10,000 × 1.057% = $105.70. The school receives $9,894.30. The student owes $10,000.
For a parent taking a $20,000 PLUS loan, the fee is $845.60. That's not pocket change. The parent receives $19,154.40 but owes interest on the full twenty grand.
Private lenders typically charge zero origination fees. This gives private loans a small upfront advantage, which borrowers then lose on the back end through (usually) higher interest rates and no federal protections. More on the trade-offs in our guide to federal vs. private student loans.
How Private Rates Work (Very Differently)
Private student loan rates are nothing like federal rates. There's no formula. No Treasury auction. Your rate is based on your credit score, income, employment history, and (often) your co-signer's credit profile.
As of early 2026, fixed rates from private lenders range from approximately 2.84% to 17.99%. That floor rate (2.84%) is available only to borrowers with exceptional credit who choose the shortest repayment term and set up autopay. The ceiling (17.99%) is what borrowers with thin or damaged credit histories face.
Variable rates start even lower but can rise over time. They're tied to indices like SOFR (the Secured Overnight Financing Rate) plus a margin based on your creditworthiness. A variable rate that starts at 4.5% could climb to 12% if market rates spike. If you want predictability, go fixed.
Your credit score is the biggest lever:
| Credit Score Range | Likely Fixed Rate Range |
|---|
| 750+ | 3.5% – 7.0% |
| 700-749 | 6.0% – 10.0% |
| 650-699 | 9.0% – 14.0% |
| Below 650 | 13.0% – 18.0% (if approved) |
These are approximate ranges based on market data as of February 2026 from lenders like College Ave, Sallie Mae, and Ascent. Your actual offer will vary.
When Interest Starts Accruing
This catches people off guard.
Subsidized loans: Interest does not accrue while you're enrolled at least half-time, during your 6-month grace period, or during deferment. The government pays the interest for you during those times.
Unsubsidized loans: Interest starts accruing the day the loan is disbursed. That means if you borrow $5,500 as a freshman and make no payments for four years of college plus a 6-month grace period, you'll owe roughly $5,500 + $1,584 in accrued interest = $7,084 before you make a single payment.
The daily interest math on a $5,500 Unsubsidized loan at 6.39%:
- ($5,500 × 0.0639) ÷ 365.25 = $0.96 per day
- Over 4.5 years (school + grace): ~$1,584
That $0.96/day seems harmless. Over 1,643 days, it's not.
Paying even $25/month toward interest during school prevents capitalization (when unpaid interest gets added to your principal, causing you to pay interest on interest). It's one of the simplest moves a student can make to reduce the true cost of their loan. Most students don't do it. Most students don't even know it's an option.
Historical Federal Rates
For perspective on where things stand:
| Academic Year | Undergraduate | Graduate | PLUS |
|---|
| 2025-26 | 6.39% | 7.94% | 8.94% |
| 2024-25 | 6.53% | 8.08% | 9.08% |
| 2023-24 | 5.50% | 7.05% | 8.05% |
| 2022-23 | 4.99% | 6.54% | 7.54% |
| 2021-22 | 3.73% | 5.28% | 6.28% |
| 2020-21 | 2.75% | 4.30% | 5.30% |
Source: U.S. Department of Education.
The 2020-21 rates look like a fever dream now. Borrowers who locked in at 2.75% during the pandemic received the lowest federal rates in modern history. If you're one of them, hold those loans close. Don't refinance them. You won't see rates like that again for a long time.
Your Next Move
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Check your actual rate. Log into StudentAid.gov → My Aid → View Loan Details. Each loan has its own rate based on when it was disbursed. Don't assume all your loans carry the same percentage.
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If you're currently in school, consider making interest-only payments on unsubsidized loans. Even $25-50/month prevents interest from capitalizing. Calculate your daily interest using: (Balance × Rate) ÷ 365.25.
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Set up autopay on any loan in repayment. The 0.25% autopay discount is free money. On a $30,000 balance, that's $75/year saved.
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For private loan shoppers, get prequalified at three or more lenders (College Ave, SoFi, Earnest) using soft credit pulls. Compare total interest over the full term, not just monthly payments.
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Run your own numbers. Use our loan payoff calculator to see what your specific loans cost at your specific rates. Understanding rate mechanics pairs well with choosing the right repayment plan for your situation. And if you're building credit to qualify for better rates, our guide on how credit scores work can help.
