Every May, interest rates on federal student loans are reset for the upcoming school year. The rates are calculated by combining the yield on the 10-year U.S. Treasury note with an extra fixed amount set by Congress.
Based on this calculation, interest rates on federal student loans are set to increase for the 2024-2025 school year by more than 1%, the fourth straight year of increases.1 According to financial aid expert Mark Kantrowitz, the new rate for undergraduate Direct Loans is the highest in over a decade, while the new rates for graduate Direct Loans and graduate and parent PLUS Loans are at the highest level in more than 20 years.2 The rates apply to new federal student loans issued July 1, 2024, through June 30, 2025, and the interest rate is fixed for the life of the loan.
Ongoing inflationary pressures have played a part in the higher rates, similar to last year. The federal funds rate set by the Federal Open Market Committee of the Federal Reserve directly influences the yield on the 10-year Treasury note, which in turn influences the interest rate on federal student loans.
| 2024-2025 | 2023-2024 | Available to | Borrowing limits | |
|---|---|---|---|---|
| Direct Loans: Undergraduate Students (Subsidized and Unsubsidized) | 6.53% | 5.50% | Undergraduate students only Subsidized loans require financial need as determined by the FAFSA (Free Application for Federal Student Aid) Unsubsidized loans are available to any student, regardless of financial need | For dependent undergraduates: 1st year: $5,500 (max $3,500 subsidized) 2nd year: $6,500 (max $4,500 subsidized) 3rd, 4th, 5th year: $7,500 (max $5,500 subsidized) Max: $31,000 (max $23,000 subsidized) |
| Direct Loans: Graduate Students (Unsubsidized only) | 8.08% | 7.05% | Graduate and professional students All students are eligible regardless of financial need | $20,500 per year; max $138,500 |
| PLUS Loans: Parents and Graduate Students (Unsubsidized only) | 9.08% | 8.05% | Parents of dependent undergraduate students and graduate and professional students | Total cost of education, minus any other aid received by student or parent |
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1) U.S. Department of Education, 2024
2) CNBC.com, May 14, 2024
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