Rising rates increase total cost of college Each spring, the government sets federal student loan interest rates for the academic year ahead. The rates are effective July 1 and will apply to all borrowers who take out new federal student loans for the 2024-25 school year. Federal student loans have fixed interest rates, so they won’t change during the repayment period — which typically lasts from 10 to 25 years, depending on your repayment plan. (If you’re already repaying older student loans, this interest rate hike doesn’t affect you.) Ultimately, higher interest rates will make college more expensive for the millions of college students and their families who take out loans. Today, about 43 million people collectively owe $1.6 trillion in outstanding federal student loans — and federal loans account for about 93% of the total debt, per an analysis of Department of Education and Federal Reserve data. That total is poised to grow: 2024 high school graduates heading to college this fall could amass about $37,000 in student loan debt while pursuing their bachelor’s degree, according to a recent NerdWallet analysis. Dependent undergraduate students can take out no more than $31,000 in federal loans, so more students may turn to private loans to fill the gaps. Here’s an example of how the higher interest rates can hit your wallet. If you start college in the fall and borrow $31,000 worth of unsubsidized federal direct loans over the course of your undergraduate education with a 6.53% interest rate, you’ll wind up paying back about $42,315 under a standard 10-year repayment plan. If you’d started college in 2020-21 and taken out the same $31,000 in unsubsidized federal loans with a record-low 2.75% interest rate, you’d have had to repay around $35,510 over 10 years — a $6,805 difference. In practice, you could pay even more. You can’t borrow the full $31,000 at once — the capped amount is split up over the years you’re in school. If you’ll be a college freshman in the fall, interest rates could increase in the three (or more) years to follow.
Run the numbers with a student loan calculator to see how much your debt may cost over time.
Federal vs. private student loan interest rates In recent years, federal student loans have offered lower interest rates than private alternatives — but that may no longer be true for some borrowers. Currently, private student loans for undergraduates have interest rates from 3.85% to 15.9%, according to an April 2024 NerdWallet analysis. To qualify for the lowest rates, borrowers must have a high credit score. Many students will need a parent with excellent credit to co-sign the loan and accept equal legal responsibility for repaying it.
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