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New Interest Rates On Federal Student Loans For 2023-2024

The interest rates on federal student loans are fixed interest rates for the life of the loan. The interest rates on new federal student loans are set each July 1 based on the high yield of the last 10-year Treasury Note auction in May.

The new interest rates for 2023-24 federal student loans disbursed on or after July 1, 2023 will be:

  • 5.498% for undergraduate Federal Direct Stafford Loans
  • 7.048% for graduate Federal Direct Stafford Loans
  • 8.048% for Federal Direct Grad PLUS Loans
  • 8.048% for Federal Direct Parent PLUS Loans.

The half point interest rate increases continue a trend that began at the start of the pandemic, after interest rates reached a historic low. 

The increases in federal student loan interest rates were influenced by the Federal Reserve Board’s attempts to control inflation by increasing interest rates. The Federal Reserve Board has increased interest rates by a total of 5 percentage points since March 2022.

Interest rates on private student loans and on old fixed rate federal student loans are not affected by the change in interest rates on new federal student loans. 

Table of Contents

Interest Rate Formula For New Federal Student Loans
Prior Years’ Interest Rates
Impact Of The Change In Interest Rates
Interaction With The Payment Pause And Interest Waiver
Current Interest Rates on Private Student Loans

Interest Rate Formula For New Federal Student Loans

The interest rates are set based on a formula that adds a fixed margin based on the type of loan to the high yield from the 10-year Treasury Note auction. The margins are as follows:

  • High yield + 2.05% for the Federal Direct Stafford Loan for undergraduate students, capped at 8.25%
  • High yield + 3.60% for the Federal Direct Stafford Loan for graduate students, capped at 9.50%
  • High yield + 4.60% for the Federal Direct Grad PLUS Loan, capped at 10.50%
  • High yield + 4.60% for the Federal Direct Parent PLUS Loan, capped at 10.50%

The high yield on the 10-year Treasury Note was 3.448% for the auction on May 10, 2023. Thus, the new interest rates are as follows:

  • 5.498% for the Federal Direct Stafford Loan for undergraduate students, up from 4.993%
  • 7.048% for the Federal Direct Stafford Loan for graduate students, up from 6.543%
  • 8.048% for the Federal Direct Grad PLUS Loan, up from 7.543%
  • 8.048% for the Federal Direct Parent PLUS Loan, up from 7.543%

Related:
Predicting Future Student Loan Interest Rates

Prior Years’ Interest Rates

This table shows how the interest rates has increased significantly during the pandemic.

Year

Federal Direct Stafford Loan (Undergraduate)

Federal Direct Stafford Loan (Graduate)

Federal Direct PLUS Loan (Graduate and Parent)

2023-2024

5.498%

7.048%

8.048%

2022-2023

4.993%

6.543%

7.543%

2021-2022

3.734%

5.284%

6.284%

2020-2021

2.750%

4.300%

5.300%

Impact Of The Change In Interest Rates

The increase in interest rates yields an increase in the monthly student loan payment of about $2.50 per $10,000 borrowed, assuming a 10-year repayment term, as compared with last year’s interest rates.

These tables show the impact of the change in interest rates on the monthly student loan payment for each type of federal education loan.

Let’s start with the most common, undergraduate Direct Stafford student loans:

Year

Federal Direct Stafford Loan (Undergraduate) Interest Rate

Monthly Payment per $10,000 on 10-Year Term

Change vs. 2020-2021

2023-2024

5.498%

$108.52

13.7%

2022-2023

4.993%

$106.03

11.1%

2021-2022

3.734%

$99.99

4.8%

2020-2021

2.750%

$95.41

0%

Graduate Direct student loans have also seen a large change:

Year

Federal Direct Stafford Loan (Graduate) Interest Rate

Monthly Payment per $10,000 on 10-Year Term

Change vs. 2020-2021

2023-2024

7.048%

$116.36

13.3%

2022-2023

6.543%

$113.77

10.8%

2021-2022

5.284%

$107.46

4.7%

2020-2021

4.30%

$102.68

0%

Graduate PLUS Loans and Parent PLUS Loans have also seen a large rise in costs:

Year

Federal Direct PLUS Loan (Graduate and Parent) Interest Rate

Monthly Payment per $10,000 on 10-Year Term

Change vs. 2020-2021

2023-2024

8.048%

$121.58

13.1%

2022-2023

7.543%

$118.93

10.6%

2021-2022

6.284%

$112.45

4.6%

2020-2021

5.30%

$107.54

0%

Interaction With The Payment Pause And Interest Waiver

Interest rates on eligible federal student loans have been temporarily set at zero since March 2020. No new interest has accrued on federal student loans in the Direct Loan program and on FFELP loans held by or on behalf of the U.S. Department of Education. 

Repayment is expected to restart on federal student loans in September 2023. Accordingly, the new federal student loans for the 2023-24 academic year may receive a month or two of waived interest, if they are disbursed in July or August, before the payment pause and interest waiver ends. Most of these loans, however, will be disbursed in September 2023 or later, and therefore not benefit from the interest waiver. 

Related: Can The President Extend The Student Loan Payment Pause Forever?

Current Interest Rates on Private Student Loans

The interest rates on private student loans depend on the type of loan and the credit score of the borrower (and cosigner, if any). They also depend on the repayment term. 

The interest rates for private student loans range from about 4.5% to 15% (fixed) and 5.0% to 15% (variable).

The interest rates for private refinance loans range from about 4.5% to 12% (fixed) and 5.0% to 12% (variable). 

Interest rates on private student loans typically change monthly. You can find the best student loan rates here.

Editor: Robert Farrington Reviewed by: Chris Muller

The post New Interest Rates On Federal Student Loans For 2023-2024 appeared first on The College Investor.

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