Federal Student Loan Interest Rates: What You Need to Know

How Federal Interest Rates Are Determined

Federal student loan interest rates are set by a formula established in the Higher Education Act of 1965, as amended. For loans first disbursed on or after July 1, 2013, the rate is based on the high yield of the 10-year Treasury Notes auctioned at the final auction before June 1 each year, plus a statutory add-on percentage that varies by loan type.

For the 2026-2027 award year (loans first disbursed between July 1, 2026 and June 30, 2027), the 10-year Treasury Note high yield was 4.468%, based on the May 12, 2026 auction. The add-on percentages are 2.05% for undergraduate Direct Subsidized and Unsubsidized Loans, 3.60% for graduate or professional Direct Unsubsidized Loans, and 4.60% for Direct PLUS Loans.

The interest rates are capped by law at maximums: 8.25% for undergraduate loans, 9.50% for graduate loans, and 10.50% for PLUS loans. These caps ensure that rates do not rise above these limits, even if Treasury yields increase significantly.

Sources: U.S. Department of Education, Federal Student Aid (FSA Partners)

Current Interest Rates by Loan Type

For federal Direct Loans first disbursed between July 1, 2026 and June 30, 2027, the fixed interest rates are as follows:

These rates apply to new loans taken out during this period. All rates are fixed for the life of the loan, meaning they will not change after you borrow.

Sources: U.S. Department of Education, Federal Student Aid (FSA Partners)

How Interest Accrues on Federal Loans

Interest on federal student loans accrues daily. The daily interest amount is calculated using the formula: (loan balance × number of days since last payment) × (interest rate factor, where the interest rate factor is the annual interest rate divided by 365).

A key difference exists between subsidized and unsubsidized loans: Direct Subsidized Loans do not accrue interest while you are enrolled in college at least half-time. Direct Unsubsidized Loans accrue interest from the time the loan is disbursed.

Interest capitalization—when unpaid interest is added to your principal balance—can occur after periods of deferment or forbearance, or when you enter repayment. This increases the total amount you owe over time.

Sources: FinAid

Interest on Repayment

The interest rate directly affects your monthly payment and the total cost of your loan. Higher rates mean higher monthly payments and more interest paid over the life of the loan.

Federal student loan repayment plans can influence how interest affects you. New repayment plans are taking effect in 2026, and you can learn more about them on our repayment plans page.

Because interest accrues daily, making payments that cover at least the accrued interest can prevent capitalization and reduce the total cost over time.

Sources: Henssler Financial

Recent Trends in Interest Rates

Federal student loan interest rates have been rising in recent years. The 2026-2027 rates represent an increase of 0.13 percentage points compared to the previous year: undergraduate rates rose from 6.39% to 6.52%, graduate rates from 7.94% to 8.07%, and PLUS rates from 8.94% to 9.07%.

• 2026-2027 undergraduate rate: 6.52% (up from 6.39%)
• 2026-2027 graduate rate: 8.07% (up from 7.94%)
• 2026-2027 PLUS rate: 9.07% (up from 8.94%)

Sources: AccessLex Institute, Henssler Financial, The College Investor

Strategies to Minimize Interest Costs

While you cannot change the interest rate on your federal student loans, you can take steps to reduce the total interest you pay over the life of the loan.

• Make interest payments while in school on unsubsidized loans to prevent capitalization.
• Consider making extra payments toward the principal when possible, which reduces the balance on which interest is calculated.
• Understand the terms of your repayment plan and choose one that fits your budget.
• Take advantage of the fixed-rate nature of federal loans, which protects you from future rate increases.

Sources: FinAid