The Higher Education Act of 1965 established that interest rates will be determined each spring for the upcoming award year. The award year begins July 1 and ends on June 30 of the following year.
In the spring, the Treasury Department holds a 10-year Treasury Note auction culminating in a determined yield. That figure establishes the fixed interest rate – or the rate for the life of the loan – that borrowers will receive for the upcoming award year.
Federal Loan Interest Rates by Year
Interest rates are determined by different yields each year and fluctuate over time. Below is a history of student loan interest rates.
| Year | Direct Subsidized | Direct Unsubsidized |
| 2024-2025 | 6.53% | 6.53% |
| 2023-2024 | 5.50% | 5.50% |
| 2022-2023 | 4.99% | 4.99% |
| 2021-2022 | 3.73% | 3.73% |
| 2020-2021 | 2.75% | 2.75% |
| 2019-2020 | 4.53% | 4.53% |
| 2018-2019 | 5.05% | 5.05% |
| 2017-2018 | 4.45% | 4.45% |
| 2016-2017 | 3.76% | 3.76% |
| 2015-2016 | 4.29% | 4.29% |
| 2014-2015 | 4.66% | 4.66% |
| 2013-2014 | 3.86% | 3.86% |
| 2012-2013 | 3.40% | 6.80% |
Subsidized Loans vs. Unsubsidized Loans
There are two types of Direct Federal Loans: subsidized and unsubsidized. Just as there are differences in who qualifies for each loan, they also have different fixed interest rates each year.
Subsidized loans are labeled as such because they do not accrue interest while the student is enrolled in college. These loans are reserved for financially needier students, and the only way to qualify is to complete the Free Application for Federal Student Aid, or FAFSA, each year.
Unsubsidized loans are available to any student who completes the FAFSA, regardless of financial need. These federal student loans accrue interest immediately while the student is enrolled in college.
Both subsidized and unsubsidized loans typically have lower interest rates than private student loans. It is always in a student’s best interest to borrow federal first as this will result in a lesser amount of student loan debt that must be paid back.
How is Interest Calculated on Student Loans?
Interest is additional money that is the cost of borrowing from a lender. This percentage is added to the principal balance and grows over time. Direct loans are “daily interest” loans, meaning interest accrues daily.
Daily interest loans can be calculated using a daily interest formula. This formula multiplies the loan balance by the number of days since the last payment was made. The result is then multiplied by the interest rate factor, which is determined by dividing the loan’s interest rate by the number of days in a year.
With some repayment plans, like the Standard, Graduated, or Extended, the interest that accrues during a month is added to the monthly payment. Other repayment plans, like the Income-Driven plan, do not figure the accrued interest into monthly payments, which must be paid in full in addition to the loan balance.
Direct Loan Interest Rate Formula Milestones
Brief history of federal student loans and how they are now fixed rates:
- 2021 – 2022 through 2024 – 2025: Interest rates have slowly been ticking upward since, rising to 3.73% in 2021 and 4.99% in 2022.
- 2020 – 2021: Interest rates plummeted due to the Coronavirus pandemic and the college enrollment crisis. Subsidized and unsubsidized loan interest rates dropped to a historic low of 2.75%.
- 2018 – 2019 through 2019 – 2020: Interest rates jumped to over 5%, the first time in nearly 10 years. Unsubsidized loans saw a similar jump to over 6%.
- 2013 – 2014 through 2017 – 2018: Subsidized and unsubsidized interest rates varied from 3 – 4%: 3.4%, 3.86%, 4.66%, 4.29%, 3.76%, and 4.45%.
- 2008-09 through 2011-12: Cut subsidized Stafford loan interest rates for undergraduate students to 6.0%, 5.6%, 4.5% and 3.4%, with a return to 6.8% in 2012-13. These cuts are available only to undergraduate students, not graduate students, and only for subsidized Stafford loans, not unsubsidized Stafford loans. Those loans remain at 6.8%.
- 2006-07: Replacement of separate variable in-school/grace and repayment rates on the Stafford Loan with a single fixed rate of 6.8%. Replacement of variable interest rates on the PLUS Loan with a fixed rate of 8.5% (FFELP) and 7.9% (DL).
- 1998-99: There was an 80-basis point reduction in both in-school/grace and repayment rates on the Stafford Loan. Consolidation loan interest rates switched from rounding up to the nearest whole percent to the nearest 1/8th of a percent and were capped at 8.25%.
- 1995-96: Separate rates were established for the Stafford Loan during the in-school and grace periods, with these rates 60 basis points lower than repayment rates.
- 1994-95: Change in the cap on the Stafford Loan from 9.0% to 8.25% and the cap on the PLUS Loan from 10.0% to 9.0%.
- 1992-93: The cap on the PLUS Loan was changed from 12.0% to 10.0%, and the interest rate was reduced by 15 basis points.
