The Federal government has determined the Federal Direct Student Loan interest rates for the school year 2025-26, which will be slightly lower. This will be for new federal loans disbursed between July 1, 2025, and June 30, 2026. The net reduction is 14 basis points lower than last year’s rate. The 2024-25 rates were higher after years of lower rates due to COVID and the historically low 10-year treasury rates.
Families and students considering using Federal Direct Loans for the 2025-26 school year will be charged the interest rates below. Borrowers need to understand how these rates are calculated and the impact of long-term student debt. It’s important to keep in mind that while the rates change every year, they will only affect loans during the upcoming period. They have no effect on previous loans or future borrowing.
The federal student loan interest rates change each year on July 1. The interest rate is based on each year’s May 10-year Treasury Note auction, plus the Department of Education add-on fees. This year’s May auction resulted in an interest rate of 4.342% versus a May 2024 rate of 4.483%
This student loan interest rate impacts direct subsidized, direct unsubsidized, direct graduate, and direct plus loans. The interest rates are fixed for the life of the loan based on the loan type borrowed. If the federal loans are consolidated, then the new federal consolidated loan will have a new interest rate. It is a weighted average using the average of the loan balance and the associated interest rate for each loan.
To learn more about all types of loans available, please read our comprehensive article on student loans.
In addition to the interest rate, processing fees are associated with these loans, which change depending on the type of loan the student or parent is using.
The chart below provides the new effective interest rates for Direct Federal Loans disbursed starting July 1, 2025, and before June 30, 2026.
New Federal Loan Limits Are Being Proposed
As the federal student loan repayment process returns to normal, the government is experiencing increasing student loan defaults. Starting 7/1/2026, we will likely see new federal loan limits. These new federal loan limits will most impact the PLUS process, so having a plan until graduation will become more critical than ever.
Private Student Loan Alternative
Some families may benefit from using a private student loan. The most significant advantage is that it does not have a federal loan fee. However, it also requires standard loan underwriting, which could impact your final interest rate.
