Taking Out a Federal Student Loan Will Get More Expensive Next Year

Federal student loan interest rates are set to rise for the upcoming academic year, keeping undergraduate borrowing costs near the highest levels seen since the late 2000s.

The new rates, which are based on the results of this month’s Treasury auction, apply only to new federal student loans first disbursed between July 1, 2026 and June 30, 2027. Existing federal loans will keep their current fixed rates.

Undergraduate student loans will carry a rate of 6.52%, up from 6.39% during the 2025-2026 academic year. Graduate direct loans will have an 8.07% interest rate, up from 7.94% last year. PLUS loans for parents of undergrads and graduate borrowers will carry a rate of 9.07%, up from 8.94%. (Only certain existing borrowers will be eligible for PLUS loans under new federal rules starting this summer.)

For students borrowing thousands to pay for college, even relatively small annual rate increases can add up over time. While the increases this year are modest, rates remain elevated by recent historical standards. Undergraduate federal loan rates stayed below 5% for much of the 2010s, before climbing higher alongside Treasury yields and broader borrowing costs in recent years.

The higher borrowing costs also come as the federal student loan system undergoes major changes under the One Big Beautiful Bill Act (OBBBA). The law will implement new borrowing limits for parents and graduate students. It also will phase out several existing income-driven repayment (IDR) plans — including the Saving on a Valuable Education (SAVE) plan and other legacy IDR options — and replace them with a new program called the Repayment Assistance Plan (RAP).

How federal student loan interest rates are set

Federal student loan rates are set by law and tied to the government’s borrowing costs. Each year, rates are calculated using the high yield of the 10-year Treasury note determined at a May auction, plus a fixed percentage point.

Once finalized, the rates are fixed for the life of the loan. That means borrowers who take out federal student loans between July 1, 2026 and June 30, 2027, will keep the same interest rate until the debt is repaid, regardless of how market rates change in the future. The only way borrowers can change their rate is by refinancing into a private loan.

Federal student loans also come with upfront origination fees charged for processing the loan. That fee is currently 1.057% for Direct Subsidized and Unsubsidized loans and 4.228% for PLUS loans.

Lastly, the rate changes apply only to federal student loans — not private loans, which set their own rates based on factors such as a borrower’s credit profile and whether they have a cosigner. Unlike private lenders, federal student loans generally don’t require a credit check or cosigner for undergraduate borrowers.

Private student loan interest rates currently range from just roughly 3% to 18%, depending on the lender and borrower. But even when private loan lenders advertise lower rates, experts generally recommend that students max out their federal loans before turning to private financing. The reason for this is because private loans don’t offer the same borrower protections, forgiveness programs or repayment plans.

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