Student loan interest rates in December 2024

Current student loan interest rates

Because federal loans are easier to qualify for, they tend to have slightly higher rates than private loans. Federal loans also come with more repayment and forbearance options than most private loans. 

Federal vs. private student loan interest rates 

Although both federal and student loan interest rates usually follow economic trends as they rise and fall, there are important differences that affect how they are set. Federal student loans are typically set once a year based on an economic benchmark. 

Private student loans are set by different banks and investors and are more closely tied to your and your cosigner's creditworthiness, as well as the type of education you're pursuing. 

Federal student loan interest rates

Congress sets new student loan rates each spring based on the high yield of the last 10-year Treasury note auction in May. The rates apply to student loans disbursed from July 1 to June 30 of the following year. Federal rates are also fixed, so they can't change once you've taken them out. 

Approval for federal student loans is not based on creditworthiness, but the rates are often slightly higher than the lowest private student loan rates. However, federal loans come with built-in forbearance options and income-driven repayment plans that private lenders don't offer. 

Private student loan interest rates

Most student loan lenders set their rates based on an economic benchmark like the Secured Overnight Financing (SOFR) index. The rate you're offered will more closely depend on the credit profile of you and your cosigner, if you have one. 

You can also choose between fixed and variable rates, compared to federal loans which only offer a fixed-rate option. 

Factors the lender may consider when determining your rate include:

• Credit score. The lowest rates go to borrowers with the highest credit scores. 
• Income. Your final rate may be based on how much of your income goes towards debt, a measure called your debt-to-income ratio.
• Type of degree. Rates may be higher or lower depending on whether you are pursuing a graduate or undergraduate degree. 
• Academic standing. Some private student loan lenders offer lower rates or extra qualifying flexibility for students who excel academically. 
• Future earnings potential. You may be eligible for outcomes-based financing, which depends on your field of study and estimated income potential. 

How will interest rates change in 2025?

With the Federal Reserve beginning a new trend of rate reductions and the administration changing from a Biden presidency to a second Trump term, the future of student loan rates is somewhat uncertain. 

Continued Fed rate cuts hold the promise of potentially lower rates, assuming inflation stays contained in the new year. Further rate cuts aren't likely to have a major impact on federal loan rates, but significant cuts could be good news for student loans hoping to refinance high student loan rates in 2025. 

How to calculate student loan interest

Calculating your student loan interest can help you determine your monthly budget. To calculate how much interest you pay each month, use the following steps:

1. Find your daily interest rate. Divide your annual interest rate by 365.
2. Determine your daily interest accrual charge. Multiply your daily interest rate by your remaining principal balance.
3. Calculate your monthly payment. Multiply that daily interest accrual by the number of days in your billing cycle.

Let's say you're charged 5.5 percent interest on your $10,000 loan every month. Here's what those steps look like:

1. 0.055 (annual interest rate) / 365 = 0.000151
2. $10,000 (principal balance) x 0.000151 = 1.51
3. 1.51 x 30 (number of days in billing cycle) = $45.30

In this scenario, you'll pay $45.30 in interest your first month. As you pay down the principal balance, less of your monthly payment will go toward interest.

Some private loans carry a variable rate, so the daily interest rate may fluctuate over the life of the loan. You can also use a student loan calculator to calculate your monthly interest charge.

Subsidized vs. unsubsidized student loans 

The difference between subsidized and unsubsidized loans is who pays interest on the loan at various times in the life of the loan. There is also a needs test that helps determine your eligibility. 

With unsubsidized loans, the borrower pays interest costs and doesn't need to demonstrate financial need. Dependent undergraduate, independent graduate and professional degree students can borrow a maximum of $31,000, $57,500 or $138,500, respectively. 

The U.S. Department of Education pays interest on subsidized loans while you're in school at least half-time, during the six-month grace period and during deferment. You must prove financial need and the lifetime maximum is $23,000. Only undergraduate students qualify.

Fixed vs. variable rates 

Fixed interest rates are the most common choice for students because they offer a predictable monthly payment for as long as you have the loan. Since the payments are on a set schedule, you can easily track your payment progress and how much principal and interest you're paying each month.

Private student loans can have either fixed or variable rates. Variable interest rates can change based on factors like the health of the economy and Federal Reserve monetary policy. The rate changes can occur monthly, quarterly or annually, depending on the benchmark they are tied to.

Is it better to choose a fixed or variable rate student loan?

The choice between fixed or variable rates comes down to stability. It's always better to have a fixed-rate loan to avoid any chance the rate could rise to the point that it becomes unaffordable.

The only exception is if the Federal funds rate, and by extension, industry rates are very low, in which case you might get a lower variable rate at first compared to a fixed rate. Given you'll be paying the rate for 10 to 20 years, however, it's usually better to stick with a fixed rate to avoid any payment shock due to unexpected spikes in variable rates.

If the past several years of fed rate hikes have taught us anything, it's that rates tend to rise much faster than they fall.

How can I reduce my student loan interest rate?

If you're looking to lower your student loan interest rate, you have a few options:

• Improve your credit score before applying: If you're applying for a loan from a private lender, you'll likely go through a credit check. The better your credit score, the lower the rate you'll receive. Before applying, check your credit reports for errors and avoid applying for other forms of credit.
• Apply with a co-signer: Many student loan borrowers don't have much credit to their name. If this is your situation, you may want to add a co-signer to your loan. Adding a co-signer with good credit will improve your creditworthiness and could help you get lower rates. Some lenders require a co-signer, especially for undergraduate borrowers.
• Choose a variable rate: It's a gamble, but choosing a variable rate over a fixed one could cause your interest rate to drop during economic downturns. However, keep in mind that you also risk your interest rate rising.
• Refinance old loans: If you took out a student loan when interest rates were high, you may be able to refinance with a lower interest rate. This is especially true if you have a better credit score now than when you first applied. Just remember that if you refinance a federal student loan, you'll lose benefits like income-driven repayment plans.

Next steps

If you're considering taking out a student loan, the best way to find a good interest rate is to shop around with multiple lenders. It's usually best to start your search with federal student loans, but private student loans are a good way to supplement. While you will be charged higher interest rates if your credit score needs work, there are lenders that cater specifically to borrowers with bad credit.