Average Student Loan Interest Rates: What Borrowers Should Know

When you take out student loans, you are charged interest. For some loans, this interest begins accruing immediately when the money is disbursed. It can cause your balance to grow over time if you are not making payments.

Since student loan interest can be expensive, it's important to understand average student loan interest rates so you can estimate the cost of borrowing. This guide will explain the average interest rates on federal and private student loans and help you make the best choice when borrowing for college.

Current student loan interest rates

Average student loan interest rates vary by loan type.

“Federal loans will cost you less because they have fixed interest rates that are lower than most private loans,” explains Eric Steffy, founder and CEO at Federal Support Solutions.

Here are the average rates for both kinds of loans.

Federal student loan interest rates

Federal student loans come with fixed rates that are the same for all borrowers and are not affected by your financial circumstances or whether you apply with a cosigner. Your rate is directly determined by two things only:

• The year in which you borrow.
• The kind of federal loan.

Here are the interest rates set by Congress for different types of federal student loans disbursed after July 1, 2024, and before July 1, 2025.

Private student loan interest rates

Private student loan interest rates work differently from interest rates on federal loans.

“Unlike federal loans, private loans typically require a credit check, and borrowers with higher credit scores or a cosigner often qualify for better rates,” explains Douglas A. Boneparth, a certified financial planner (CFP) and founder of Bone Fide Wealth, LLC. “Interest rates can be fixed or variable, and repayment terms vary by lender.”

Your loan term has a big impact on the rate you pay as well. For example, as of January 6, 2025 for borrowers with credit scores of 720 or higher who used the Credible marketplace:

• The average interest rate on a 10-year fixed-rate student loan was 7.34%.
• The average interest rate on a five-year variable-rate loan averaged 12.58%.

Current private student loan rates

Factors that affect student loan interest rates

Federal student loan rates are set by Congress using a set formula.

The formula adds an amount set by law to the high yield of the 10-year treasury notes in the last auction held before June 1 of the year in which the federal loans will be issued. Your credit, income, and other financial credentials make no difference. All borrowers taking the same type of loan during the same period pay the same rate.

Individual lenders set private student loan rates, and they vary among borrowers based on factors including:

• Loans with shorter payoff terms often charge lower rates because there is less risk to lenders with a short payoff time.
• Variable-rate loans often start with lower rates than their fixed-rate counterparts, but there is more risk for borrowers because rates could increase over time.
• Borrowers with good credit and high incomes pay lower rates, as do borrowers who apply with a qualified cosigner as well-credentialed buyers present less risk to lenders

The lower your rate, the easier it is to pay off student loans. Understanding these factors and shopping around can help you find the best private student loan rates for you.

Historical trends in student loan interest rates

The Federal Reserve aggressively raised interest rates in the post-pandemic era in response to surging inflation. This affected the cost of all types of borrowing, including federal student loans.

While student loan interest rates have trended higher since the 2021-22 school year, the Fed cut its benchmark rate three times in the second half of 2024 as inflation cooled. Federal student loan rates for the 2025-26 school year will be set in the spring of 2025 and may move lower with the decline in Fed rates. The table below shows the recent federal student loan interest rate trend:

Private student loan rates for borrowers who used the Credible marketplace have fluctuated in recent years, sometimes rising and sometimes falling.

• Average rates on a 10-year fixed-rate loan touched a low of 4.87% in April 2022. In contrast, on April 15, 2024, 10-year fixed rates hit an average of 10.45%.
• In March 2022, the average rate on a 5-year variable rate student loan hit a record low of 1.84%. In June 2023, it touched a high of 15.95%.

The Federal Reserve's decisions on interest rates also affect private student loans. If inflation remains under control and policymakers continue to reduce the federal funds rate, private student loan rates may decrease.

How to get a low interest rate

If you want to pay off student loans as quickly and affordably as possible, getting the lowest interest rate is important. Here are some tips to do that.

How to reduce your federal student loan interest rate

If you apply for federal student loans, you can't do anything to improve your rate. If you need to borrow for a specific school year, you must pay the rate that Congress set for that year.

However, you can reduce interest costs by maxing out Direct Subsidized Loans and Direct Unsubsidized Loans before turning to PLUS Loans. Direct Subsidized Loans are especially affordable because interest is subsidized while in school and during eligible deferments, so you do not need to worry about compound interest.

Learn more: Subsidized vs. Unsubsidized Loans: What's The Difference?

Federal loans also offer other benefits, including income-driven repayment plans that set payments at a percentage of income, with any remaining balance forgiven after 10 to 25 years of repayment. Public Service Loan Forgiveness (PSLF) is also an option.

How to reduce your private student loan interest rate

If you apply for private student loans, you can do a lot to reduce the rate you're charged. Some tips include:

• Improve your credit score and other financial credentials so lenders see you as less risky and offer better rates.
• Apply for student loans with a cosigner who has solid financial credentials.
• Shop around to compare rates and terms.

You can also explore refinancing options, which can lower your rate after you initially borrow. You must refinance with another private lender as there are no federal refinance loans, but this is not a disadvantage if you already have private loans. It's important to remember that if you refinance federal student loans, they'll be converted to private loans, and you'll lose federal benefits and protections such as income-driven repayment and forgiveness programs.

Making payments that cover interest while in school will also reduce the interest you pay over time with private student loans, and it's worth considering this if you can afford it.