Federal Student Loan Interest Rates (2026–27)
Federal student loan rates are set each year by a formula in federal law, the 10-year Treasury yield at the May auction plus a fixed add-on, and are fixed for the life of each loan disbursed during that academic year. For loans disbursed between July 1, 2026 and June 30, 2027:
| Loan Type | Rate |
|---|---|
| Direct Subsidized & Unsubsidized (Undergraduate) | 6.52% |
| Direct Unsubsidized (Graduate/Professional) | 8.07% |
| Direct PLUS (Parent, and Grad PLUS for eligible continuing borrowers) | 9.07% |
Grad PLUS loans are closed to new borrowers from July 1, 2026, with limited exceptions for students already enrolled and borrowing them. Private student loan rates vary widely by lender and your credit profile. Always exhaust federal loan options before turning to private loans — federal loans carry protections (income-driven repayment, forgiveness programs, deferment) that private loans do not.
Shorter vs. Longer Repayment Terms
A 10-year term minimizes total interest. Longer terms (up to 25 years, which the new Standard plan uses for larger balances) lower monthly payments but can nearly triple the interest you pay. Here's the difference on a $30,000 balance at 6.52%:
| Plan | Monthly Payment | Total Interest |
|---|---|---|
| 5 years | $587 | $5,240 |
| 10 years (Standard) | $341 | $10,900 |
| 15 years | $262 | $17,100 |
| 20 years | $224 | $23,800 |
| 25 years | $203 | $30,900 |
Going from 10 to 25 years saves $138/month — but costs an extra $19,967 in interest. If cash flow is tight, a longer term offers breathing room, but pay extra whenever you can.
Federal vs. Private Student Loans
Not all student loans work the same way. The type of loan you have affects your interest rate, repayment options, and what happens if you run into financial trouble.
| Federal Loans | Private Loans | |
|---|---|---|
| Interest Rate | Fixed, set yearly by a formula in federal law | Fixed or variable, set by lender |
| Credit Check | Not required (except PLUS) | Required |
| Repayment Plans | Standard and income-driven (RAP for new loans) | Lender-specific, limited flexibility |
| Deferment/Forbearance | Available with defined criteria | Varies by lender |
| Forgiveness Programs | PSLF, income-driven forgiveness | Generally not available |
| Discharge in Bankruptcy | Difficult but possible | Difficult but possible |
Federal loans come with protections — income-driven repayment plans that cap your payment as a percentage of income, deferment options during hardship, and forgiveness programs for qualifying borrowers. Private loans can sometimes offer lower rates for borrowers with strong credit, but they don't carry these protections. Most financial aid guidance suggests exhausting federal loan eligibility before turning to private lenders.
The Power of Extra Payments
Extra payments go directly to principal, which reduces the balance that accrues interest each month. On a $30,000 loan at 6.52%, adding just $100/month to the standard payment pays off the loan in about 7 years instead of 10 — saving over $3,000 in interest.
Frequently Asked Questions
What is the standard repayment term for federal student loans?
For loans made before July 1, 2026, the standard plan is 10 years (120 monthly payments). For new loans made on or after July 1, 2026, the Standard plan runs 10 to 25 years depending on how much you borrowed, and the only other option is the income-based Repayment Assistance Plan (RAP), which sets payments at 1% to 10% of adjusted gross income and forgives any balance left after 360 qualifying payments. Longer terms lower the monthly payment but raise total interest.
Should I pay extra on my student loans?
If your interest rate is above 6–7%, making extra payments is usually worth it. Every dollar of extra principal payment saves you the loan's interest rate in perpetuity. If your loans are at 3–4%, as some federal loans from 2020 and 2021 are, investing extra money has historically done better over long periods, though with no guarantee.
What is capitalized interest on student loans?
Capitalized interest is unpaid interest that gets added to your principal balance, causing you to pay interest on interest. This commonly happens after a grace period, deferment, or forbearance ends. For example, if you accrue $2,000 in interest during a 6-month grace period and it capitalizes, your new principal is $2,000 higher than your original loan amount.
What is the difference between subsidized and unsubsidized loans?
With subsidized federal loans, the government pays the interest while you're enrolled at least half-time, during the grace period, and during deferment. With unsubsidized loans, interest accrues immediately from disbursement — even while you're in school. If you don't pay that interest, it capitalizes when repayment begins, increasing your principal.
What happens if I can't make my student loan payment?
Federal loans offer deferment (temporarily pausing payments) and forbearance options if you're experiencing financial hardship. Interest may continue to accrue during these periods. Income-driven repayment can lower your payment; the Repayment Assistance Plan charges 1% to 10% of adjusted gross income, with a $10 minimum. Private loans have fewer protections — contact your servicer immediately if you're struggling.
Does paying off student loans early make financial sense?
It depends on your rate. Paying early earns exactly your loan rate, guaranteed: 6.52% on new undergraduate loans and 8.07–9.07% on graduate and PLUS loans. Stocks have returned more than that over long periods, but with large swings, so the higher your rate, the stronger the case for paying early. Compare your loan rate against your other options to decide where extra money does the most work.
Are student loan interest payments tax deductible?
Yes — you can deduct up to $2,500 in student loan interest paid per year, subject to income limits. For 2026, the deduction phases out between $85,000 and $100,000 of modified AGI for single filers ($175,000–$205,000 for married filing jointly). The deduction reduces your taxable income, so the actual tax savings depends on your marginal rate.