How Federal Loan Rates Are Set
Federal student loan interest rates are set each year by federal law. They are based on the yield of the 10-year Treasury note plus a margin that varies by loan type. This formula is intended to reflect the government's cost of borrowing and is applied to loans disbursed during that academic year.
For loans first disbursed on or after July 1, 2006, federal student loan interest rates are fixed for the life of the loan. This means that once you take out a federal student loan, your interest rate will not change, even if market rates fluctuate.
Sources: Edfinancial Services (Federal Student Aid servicer), MOHELA (Federal Student Aid servicer), Juno
Federal Interest Rates by Loan Type
The following table shows the interest rates for federal student loans for the 2026-2027 academic year (July 1, 2026 – June 30, 2027). These rates are set annually and apply to loans disbursed during that period.
Sources: Edfinancial Services (Federal Student Aid servicer)
Private Loan Rates and Creditworthiness
Unlike federal loans, private student loan interest rates are set by individual lenders. Lenders assess your creditworthiness, along with other factors such as income, loan term, and whether you have a cosigner. Borrowers with stronger credit profiles generally qualify for lower rates.
Private student loans can offer both fixed and variable interest rates, while federal student loans only offer fixed rates. Variable rates are often based on a benchmark such as the Secured Overnight Financing Rate (SOFR) or the Prime Rate, plus a margin determined by the lender.
Sources: SoFi, Citizens Bank, Juno
Fixed vs. Variable Rates
When choosing a student loan, you often have the option of a fixed or variable interest rate. Fixed-rate loans have a rate that stays the same for the life of the loan, providing predictable monthly payments. Variable-rate loans have rates that can fluctuate with market conditions, which means your monthly payment can change.
Fixed-rate loans generally start with higher interest rates than variable-rate loans. However, variable-rate loans may carry interest-rate caps that limit how high the rate can rise.
| Feature | Fixed-Rate Loans | Variable-Rate Loans |
|---|---|---|
| Rate stability | Rate stays the same for the life of the loan | Rate can fluctuate based on market conditions |
| Predictable monthly payments | Yes, monthly payment remains constant | No, payments may change when rates change |
| Starting rate relative to variable | Generally higher than variable rates at the time of application | Typically lower than fixed rates initially |
| Available for federal loans | Yes, all federal loans are fixed | No, only private lenders offer variable rates |
Sources: StudentChoice.org (CU Student Choice), SoFi, Citizens Bank, NerdWallet
Loan Fees and Other Costs
In addition to interest, some loans charge fees. For example, federal Direct Loans and PLUS loans have origination fees that are deducted from the loan amount before disbursement. The fee percentage can change annually, so it is important to check the current rate on the official Federal Student Aid website. Most private student lenders, on the other hand, do not charge origination fees.
When comparing loans, it's important to look at the Annual Percentage Rate (APR), which includes both the interest rate and any fees. The APR gives a more accurate cost comparison than the interest rate alone.
How Rates Affect Total Cost
Interest accrues daily on federal Direct Loans. If you don't pay the interest as it accrues, it may be capitalized—added to your principal balance—which increases the total cost of your loan. Understanding how interest accrues and capitalizes is key to managing your total loan cost.
Federal student loans generally have lower interest rates and more flexible repayment terms than private student loans, making them a more cost-effective option for most borrowers.
Sources: MOHELA (Federal Student Aid servicer), Bankrate, Citizens Bank
Finding Current Rates
Federal student loan interest rates are announced each year for the upcoming academic year. To check the most current rates, you can visit official federal student aid websites, such as StudentAid.gov, or your loan servicer's website.
Private student loan rates are set by individual lenders and can vary based on your credit profile and market conditions. To find current private rates, you can check lender websites or use comparison tools. When you receive a loan offer, be sure to compare the APR and consider factors such as repayment terms and benefits.
Sources: Edfinancial Services (Federal Student Aid servicer), StudentChoice.org (CU Student Choice)
How to Choose the Right Rate Type
Choosing between a fixed and variable rate depends on your financial situation and risk tolerance. If you prefer predictable monthly payments and plan to keep the loan for a longer period, a fixed-rate loan might be better. If you expect rates to stay stable or decline and are comfortable with payment fluctuations, a variable-rate loan could offer lower initial rates.
When comparing loan offers, focus on the APR rather than just the interest rate. Also, consider whether the loan has a cap on variable rates and any fees that might increase the total cost.
Frequently asked questions
Why do federal and private rates differ?
Federal rates are set by law each year based on the 10-year Treasury yield plus a fixed margin, while private rates are determined by lenders based on your creditworthiness and other factors. Federal loans generally have lower rates because they are subsidized by the government and don't reflect individual risk as much as private loans do.
Sources: Citizens Bank, JunoCan I get a lower rate by refinancing?
Refinancing can potentially lower your interest rate if your credit profile has improved or market rates have fallen. However, your credit profile and financial situation affect the rate you'll be offered. Refinancing federal loans may also cause you to lose federal benefits, so consider the trade-offs.
Sources: SoFiWhat factors affect private loan rates?
Private lenders consider your creditworthiness, income, loan term, and whether you have a cosigner when setting your rate. Borrowers with strong credit and a cosigner may qualify for lower rates.
Sources: Citizens Bank, JunoSources
- Interest Rates for Federal Student Loans – Edfinancial Services — Edfinancial Services (Federal Student Aid servicer)
- Student Loan Interest — MOHELA (Federal Student Aid servicer)
- Types of student loans and how to choose one — Bankrate
- The Student Loan Comparison Cheat Sheet: How to Read a Loan Offer Like a Pro — StudentChoice.org (CU Student Choice)
- Choosing Between Variable And Fixed Rate Student Loans — SoFi
- How Do Student Loan Interest Rates Work? | Citizens — Citizens Bank
- Fixed- or Variable-Rate Student Loan: Which Is Better? - NerdWallet — NerdWallet
- What Determines Student Loan Interest Rates? — Juno