Student Loan Interest Rates

Current student loan interest rates and ranges for December 2022

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Student loan interest rates have climbed in the last year as the Fed has increased interest rates to combat inflation. Though rates have gone up, they are still currently some of the lowest we’ve seen in history. Before taking out student loans, there are important things to consider, particularly in this volatile economic climate.

Key Takeaways

  • All federal student loans are currently 0% interest and require no payments through Dec. 31, 2022.
  • Federal student loan interest rates are currently at very low levels.
  • Beginning July 1, 2022, federal student loan rates for undergraduate loans are 4.99%, graduate loan rates are 6.54%, and parent PLUS loan rates are 7.54%.

School Enrollment Trends

In fall 2020, colleges and universities opened their classrooms and dorm rooms again, with noticeable trends (both expected and unexpected) following soon after. Within the first few weeks of resuming classes, as expected, many schools had postponed sports, reported widespread quarantines, and switched in-person classes to virtual.

All months of payment suspension will count as “qualifying payments” for borrowers working toward forgiveness under the Public Service Loan Forgiveness (PSLF) program or on an income-driven repayment (IDR) plan. Borrowers who have worked for eligible employers and have either FFEL, Perkins Loans, or Direct Loans, need to submit a PSLF application by Oct. 31, 2022, to take advantage of a limited PSLF waiver that gives borrowers credit for pay periods that would normally not count toward the 120 qualifying payments they need to receive loan forgiveness.

Less expected were the trends with enrollment. Many thought that community colleges would see higher enrollment during the pandemic, but data showed that fall enrollment was up for some large public universities, while enrollment at community colleges that serve many low-income students was down as much as 30%.

In the spring of 2022, enrollment continued to exhibit worsening trends with total post-secondary enrollment falling to 16.2 million, a one-year decline of 4.1%. This follows a 3.5% drop in the year prior. The bulk of the drop was in undergraduate enrollment; 4.7% from the prior year. The amount of individuals enrolled in undergraduate programs is 9.4% smaller than before the pandemic.

Try to take out no more in student loans than what you expect to make in your first year out of school.

Student Debt Continues to Rise

Student debt continues to be an epidemic in our society. Since the 2007–2008 Great Recession, federal funding for public universities has decreased by 22%, while tuition costs have risen by 27%. This has led to student loan debt that has surpassed $1.6 trillion. The debt may get worse if the education system is forced to undergo more budget cuts and more unemployed Americans take advantage of low interest rates to go back to school.

Federal Student Loan Interest Rates

Beginning July 1, 2022, federal student loan rates for undergraduate loans are 4.99%, graduate loan rates are 6.54%, and parent PLUS loan rates are 7.54%. There is an origination fee of 1.057% for federal direct subsidized loans and direct unsubsidized loans, in addition to 4.228% for parent PLUS loans. This fee isn’t added to your repayment; rather, it’s deducted from your initial loan disbursement.

Private Student Loan Interest Rates

Private lenders set a range for interest rates. Your actual rate will be based on the creditworthiness of you and your cosigner. According to Bankrate, private student loan annual percentage rates (APRs) are currently:

Loan Type Fixed APR Variable APR
Undergraduate and Graduate 3.22% to 13.95% 1.84% to 13.85%
Refinance 2.99% to 9.93% 2.49% to 8.24%

How Is Student Loan Interest Calculated?

Federal student loans and most private student loans use a simple interest formula to calculate student loan interest. This formula consists of multiplying your outstanding principal balance by the interest rate factor and multiplying that result by the number of days since you made your last payment.

  • Interest Amount = (Outstanding Principal Balance × Interest Rate Factor) × Number of Days Since Last Payment

The interest rate factor is used to calculate the amount of interest that accrues on your loan. It is determined by dividing your loan’s interest rate by the number of days in the year.

How Are Student Loan Interest Rates Calculated?

Federal student loan interest rates for the fall are determined by the 10-year Treasury note auction every May, plus a fixed increase with a cap.

  • Direct unsubsidized loans for undergraduates: 10-year Treasury + 2.05%, capped at 8.25%
  • Direct unsubsidized loans for graduates: 10-year Treasury + 3.60%, capped at 9.50%
  • Direct PLUS loans: 10-year Treasury + 4.60%, capped at 10.50%

Private student loan interest rates are determined by each lender based on market factors and the borrower’s and cosigner’s creditworthiness. Most private lenders also offer a variable interest rate, which typically fluctuates monthly or quarterly with overnight lending rates such as the Secured Overnight Financing Rate (SOFR).

While federal student loans don’t take into account credit scores and income, these factors play a big role in private lenders’ decisions. Students who don’t meet lenders’ credit requirements will need a cosigner. The 2017 Annual Report of the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman noted that more than 90% of private student loans were made with a cosigner; however, even if you don’t have a good credit score or cosigner, there are lenders that offer student loans for bad credit and student loans without a cosigner.

What Are Current Student Loan Interest Rates?

Federal student loan rates beginning July 1, 2022:

  • Direct subsidized and unsubsidized loans for undergraduates: 4.99%
  • Direct unsubsidized loans for graduates or professional borrowers: 6.54%
  • Direct PLUS loans for parents and graduate or professional students: 7.54%

The Bottom Line

With federal student loan rates still relatively low when compared to historic levels, now might be a good time to take out a student loan. Always exhaust all your options for federal student loans first by using the Free Application for Federal Student Aid (FAFSA) form, then research the best private student loans to fill in any gaps. Whether you choose federal or private loans, only take out what you need and can afford to repay.

If you have private student loans, this may be a great time to refinance. All of the best student loan refinance companies are offering competitive rates and can cater to unique debt situations.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Saving for College. "Historical Federal Student Loan Interest Rates and Fees."

  2. Federal Student Aid. "Covid-19 Loan Payment Pause and 0% Interest."

  3. Federal Student Aid. “Understand How Interest Is Calculated and What Fees Are Associated with Your Federal Student Loan.”

  4. Federal Student Aid. "PSLF Waiver Offers Way to Get Closer to Loan Forgiveness."

  5. Inside Higher Ed. “A Tough Year for Community Colleges.”

  6. National Student Clearinghouse Research Center. "Current Term Enrollment Estimates."

  7. Federal Reserve Bank of St. Louis. “Rising Student Debt and the Great Recession.”

  8. Bankrate. “Student Loan Interest Rates in September 2022.”

  9. Federal Student Aid. “Interest Rates for Direct Loans First Disbursed Between July 1, 2022 and June 30, 2023.”

  10. Consumer Financial Protection Bureau. “2017 Annual Report of the CFPB Student Loan Ombudsman,” Page 24.

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