You’ve probably heard rumors that student loan interest rates are rising.
With outstanding student debt at an all-time high of $1.75 trillion across 45 million borrowers, the question of whether interest rates will increase is important.
In this article, we’ll discuss the factors that impact student loan interest rates and what you can expect shortly.
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What Determines Student Loan Interest Rates
Interest rates on federal student loans are determined by federal law. Specifically, rates are set yearly based on May’s last 10-year Treasury note auction results.
Because this rate is tied to financial markets, interest rates fluctuate yearly. Generally, when the economy is doing well, and Treasury note yields are high, student loan interest rates rise.
Private student loans are different—the lenders set these rates based on factors like your credit score, debt-to-income ratio, and other economic factors.
Private loans usually have higher, variable interest rates than federal ones.
Current Interest Rates
Here are the current interest rates for federal student loans first disbursed on or after July 1, 2022, and before July 1, 2023:
- Undergraduate Stafford (Direct) loans: 4.99%
- Graduate Stafford (Direct) loans: 6.54%
- PLUS loans for parents and graduate students: 7.54%
These rates are up about 2% from the 2021-2022 academic year when interest rates were at historic lows.
However, they are still lower than pre-pandemic levels in 2018-2019, when undergraduate Stafford loans had a rate of 5.05%.
Overall, interest rates are on an upward trend—but remain below what they were just a few years ago.
Future Projections
So, what can you expect for interest rates in the coming years? Experts project rates will continue rising gradually along with the economy.
The Congressional Budget Office predicts interest rates on undergraduate Stafford loans to reach 5.2% by 2023 and 6.3% by 2032. Rates for PLUS loans are expected to climb even more—up to 8.5% by 2032.
These projections indicate that federal student loan interest rates rise by about 1% over the next decade. However, increases will be gradual—not dramatic spikes.
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Impact on Student Borrowers
Rising interest rates mean student debt will accumulate more quickly. For example, if you have $30,000 in loans at an interest rate of 5%, you’ll accrue $1,500 in interest per year.
But at 6%, that interest jumps to $1,800 annually—a difference of $300 per year.
Over a 10-year repayment term, that extra 1% interest costs you an additional $3,000. The impact grows exponentially the more you borrow.
That said, federal student loan interest rates are still relatively low historically. Even if they rise to 6% or 7%, that’s manageable compared to interest rates of 8% or higher experienced by previous generations.
You do have some protections, too. Federal student loan payments are capped at 10% of your disposable income on an income-driven repayment plan.
This limits the impact of interest rate increases if your income doesn’t rise significantly.
Strategies to Save
While you can’t control whether interest rates go up, here are some strategies to save:
- Pay off loans quickly. The less time you take to repay loans, the less interest you’ll pay overall. Make payments above the minimum when possible.
- Consolidate or refinance. You can lower your rate by consolidating federal loans or refinancing private loans. This works best if you have a strong credit score.
- Use automatic payments. Enrolling in autopay typically lowers your interest rate by 0.25%.
- Claim deductions. Student loan interest is deductible up to $2,500 on your taxes.
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Final Thoughts
While rising interest rates increase costs for student borrowers, changes happen slowly, and rates remain relatively low historically.
Focus on repayment strategies like paying extra each month, and your loans should still be manageable even if interest rates climb.
Monitor proposals in Congress—some include provisions to lower rates or forgive debt, which could offset increases.
With prudent financial planning, you can keep student loans affordable even in a rising interest rate environment.
The key is staying informed on policy changes and having a proactive repayment strategy tailored to your situation. Limiting new borrowing whenever possible will also help you get ahead of interest.
There are resources to help you navigate student loan repayment. Contact your servicer or the Department of Education if you have any questions.
And remember, you have options like income-driven plans and forgiveness programs to ease the burden.
While interest rates are one piece of the puzzle, they don’t define your financial future. With smart planning, you can take
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