What Is the Average Student Loan Interest Rate?

If you have student debt or are planning to borrow money for college, pay special attention to your student loan interest rates. The higher the rates, the more you’ll pay, while lower rates will mean repaying less.

So what is the average student loan interest rate? Form 2006 through 2021, average federal student loan rates were 4.66% and 6.22% for undergraduate and graduate loans, respectively. However, your rate may be well outside this range, depending on the type of loan you take out, including federal and private student loans, as well as whether you had a cosigner.

Here’s an overview of the average student loan interest rates you can expect, along with an explanation of how these rates are set.

Federal Student Loan Interest Rates

Federal student loan rates change each school year, and they have varied significantly over the past 15 years. On direct subsidized and unsubsidized loans for undergraduates, for example, the lowest rate of 2.75% is less than half the highest rate on these loans of 6.8%.

What Affects Federal Student Loan Rates?

Here are some factors that contribute to your interest rate:

• What type of student loans you’re getting. Direct subsidized and unsubsidized loans carry the lowest federal student loan rates, while PLUS loans cost more.
• What type of borrower you are. On direct unsubsidized loans, undergraduate students pay rates that are 1.55 percentage points lower than those for graduate or professional school borrowers.
• When you take out a loan. Federal student loan interest rates are decided annually on June 1 and take effect from July 1 to June 30 of the following year. Your loan will be assigned the federal student loan rate based on the date of the first disbursement.
• Recent 10-Year U.S. Treasury yields. The formula for federal student loan rates is based on the 10-year Treasury yield, plus a fixed add-on amount. When U.S. Treasury yields rise or fall, student loan rates track along with them, up to a rate cap set by law.

Fortunately, federal student loan rates tend to beat what you’d pay on private student loans or other forms of debt, making them a fairly affordable way to finance a college degree.

Private Student Loan Interest Rates

While federal student loan rates are standardized to all borrowers on a specific type of loan, the range of private student loan rates is much wider. 

Here’s a look some statistics on average private student loan for undergraduates:

• 6.17% average starting rate for five-year, private student loans with variable rates.
• 7.64% average fixed rate for 10-year private student loans.
• Private student loan rates can be lower; variable rates start at 1.25% to 2.25% APR, while fixed rates start around 4.25% to 4.75% APR.
• On the higher end, private student loan rates can range up to 11.97% to 12.59% APR.

Private student loan rates vary so much because they’re tied to several factors that can change from lender to lender, loan to loan, and borrower to borrower.

What Affects Private Student Loan Rates?

With private student loan fixed rates ranging from 4.25% up to 12.59%, it can be tricky to know what you can expect to pay. The following factors can impact private student loan rates:

Which lender you choose. While many lenders offer comparable and competitive rates, some can provide a better deal than others. Collecting rate quotes can help you find the lender offering the best deal for you.

How creditworthy you (and your co-signer) are. You’ll typically need a good credit score (mid-600s or higher) to qualify for a private student loan. Lenders also tie student loan rate offers to your credit score, so having better credit will net you lower rates. If your credit score doesn’t meet this standard, you can add a co-signer to your application.

The private student loan terms you choose. The options you select for your loan will impact the interest you pay. Variable-rate student loans tend to have lower rates initially, for example, but can rise or fall in repayment. Fixed rates, on the other hand, can be higher at first but are locked in through repayment and won’t change. Many lenders also offer lower rates on shorter student loan terms.

The general rates environment when you originate a loan. Similar to how federal student loan rates are tied to U.S. Treasury yields, private student loan rates are also affected by what’s happening in the larger markets and economy. As overall rates rise or fall, you can expect private student loans to reflect those trends.

How to Fight High Student Loan Rates

Once you’ve already taken out a loan, your options for lowering student loan rates are limited but not gone. Many lenders offer a small rate discount, typically 0.25 percentage points, for setting up automatic payments. Student loan refinancing can be an option to help you replace high-interest student loans with a newer loan at a lower rate. Making extra payments on your student loan can lower the balance and the interest you pay on it. 

The best way to limit the costs you pay due to student loan interest rates is to borrow wisely in the first place. Students and their parents can compare federal and private student loan rates and take advantage of lower-rate options first.