• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In January 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Student Loans » Federal » Student Loan Interest Rates Set To Rise This Fall

Student Loan Interest Rates Set To Rise This Fall

Updated: August 24, 2022 By Mark Kantrowitz

Tweet
Share
Share
Pin
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Federal Student Loan Interest Rates Set To Rise This Fall

Interest rates on new federal student loans will jump by more than a full percentage point on July 1, 2022. This is the second time interest rates on federal student loans have increased during the pandemic.

The interest rates for loans disbursed during the 2022-2023 academic year will be:

  • 4.993% for undergraduate Federal Direct Stafford loans, subsidized and unsubsidized, up from 3.734% in 2021-2022 and 2.75% in 2020-2021.
  • 6.543% for graduate Federal Direct Stafford loans, up from 5.284% in 2021-2022 and 4.30% in 2020-2021.
  • 7.543% for Federal Direct Parent PLUS loans and Federal Direct Grad PLUS loans, up from 6.284% in 2021-2022 and 5.30% in 2020-2021

The new interest rates apply only to new loans disbursed between July 1, 2022 and June 30, 2023. The interest rates on old loans will not change. Federal student loans have fixed interest rates, which do not change. 

The student loan moratorium temporarily set the interest rate on eligible federal student loans at 0% starting in March 2020. When this payment pause and interest waiver expires on December 31, 2022, federal student loans will return to their original interest rates. The payment pause and interest waiver may be extended further, since it seems unlikely that the White House will allow repayment to restart just two months before the mid-term elections. 

Editor's Note: The date of the payment pause was updated to reflect the latest changes.

Table of Contents
Who Sets the Interest Rates On Federal Student Loans?
What Will Happen With The Interest Rates On Private Student Loans?
Impact Of Interest Rate Increases
How To Lower Your Interest Rate

Who Sets the Interest Rates On Federal Student Loans?

The interest rates for federal student loans are based on the high yield of the last 10-year Treasury Note auction in May, as specified by Congress in the Higher Education Act of 1965.

The high yield for the auction that occurred on May 11, 2022 was 2.943%, up from 1.684% in 2021 and 0.70% in 2020. The interest rates on federal student loans are calculated by adding fixed margins of 2.05%, 3.6% and 4.6% to the high yield.

The interest rates have increased in part because of moves by the Federal Reserve Board to control inflation. The Federal Reserve tries to control inflation by increasing the Federal Funds Rate. Since these efforts are unlikely to be successful, student loan interest rates are likely to continue increasing next year and the year after until supply chain issues resolve on their own.

What Will Happen With The Interest Rates On Private Student Loans?

Each lender sets its own interest rates on private student loans. 

Private student loans offer fixed and variable interest rate options.

Interest rates are usually based on an underlying index, such as the London Interbank Offered Rate (LIBOR) index, Secured Overnight Funding Rate (SOFR) index and Prime Lending Rate.  A fixed margin is added to the index rate to yield the interest rate that the borrower pays. The margin is based on the credit scores of the borrower and cosigner.

The interest rate on a variable-rate loan tends to float with changes in the index. Some lenders use a one-month average of the index rate, while others use a three-month average. The three-month index rates effectively phase in interest rate changes over a three-month period, while the one-month index is more immediate.

The interest rate on a fixed-rate loan is based not only on the current index rates, but also on projected future changes in the interest rate and the length of the repayment term. In a rising rate environment, a loan with a shorter repayment term will have a lower fixed rate than a loan with a longer repayment term.

Interest rates are currently at or near record lows. The lowest variable rate on private student loans for undergraduate students with excellent credit is 1.19%. The lowest fixed rate is 3.49%. These interest rates are likely to start increasing soon. 

Impact Of Interest Rate Increases

The monthly student loan payments will increase as interest rate increases, but not as much as you might expect. The new interest rates will increase the monthly student loan payment by about $5 per $10,000 borrowed, costing borrowers about $500 to $1,000 over the life of the loan.

Here's a couple examples - let's say you borrow $10,000.

Borrowing $10,000 For 10 Years

  • At 3.734%, you'll pay $99.99mo, or $11,998.18 in total
  • At 4.993%, you'll pay $106.03/mo, or $12,723.76 in total

That 1.25% rise in interest increased your monthly payment by $6.05, or $725 over the life of the loan.

Borrowing $10,000 For 20 Years

If we take the same example as above, but stretch the loan term out to 20 years.

  • At 3.734%, you'll pay $59.21mo, or $14,208.83 in total
  • At 4.993%, you'll pay $65.96/mo, or $15,829.66 in total

That 1.25% rise in interest increased your monthly payment by $6.75, or $1,620 over the life of the loan.

How To Lower Your Interest Rate

There are two ways to reduce the interest rates you pay.

One is to sign up for AutoPay, where your student loan payments are automatically transferred from your bank account to the lender each month. Most lenders will provide a 0.25% or 0.50% interest rate reduction as an incentive.

The other is to refinance federal student loans into a private student loan, if you can qualify for a lower interest rate. But, a private refi will cause you to lose the better benefits of federal student loans, such as longer deferments and forbearances, income-driven repayment, loan discharge and loan forgiveness options. The student loan moratorium has temporarily set the interest rates to zero on eligible federal student loans. Private student loans can’t beat that. In addition, policymakers are discussing broad student loan forgiveness, which may cancel $10,000 or more in federal student loan debt per borrower.

Sadly, borrowers cannot borrow loans for the 2022-2023 academic year early, to lock in the current interest rates.

Mark Kantrowitz
Mark Kantrowitz

Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.

Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).

Student Loan Interest Rates Set To Rise This Fall

Editor: Robert Farrington

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Student Loan Resources

Featured Lender Reviews

>  Credible (recommended)
>  Splash (recommended)
>  ELFI
>  LendKey
>  Earnest
>  Laurel Road

Paying For College

  • Best Student Loans And Rates
  • Best Private Student Loans
  • Student Loan And Financial Aid Programs By State
  • Student Loans For Community College
  • Best International Student Loans
  • Best Student Loans For Graduate School
  • Best Student Loans For Your MBA
  • Best Student Loans For Medical School
  • How To Get A Private Student Loan With No Cosigner
  • How To Get A Student Loan With Bad Credit

Navigating Repayment

  • How To Select The Best Student Loan Repayment Plan
  • 5 Legal Ways To Lower Your Student Loan Payment
  • How To Use A 529 Plan For Student Loan Repayment
  • These Companies Offer Student Loan Repayment Assistance

Student Loan Forgiveness

  • Student Loan Forgiveness Programs (The Complete List)
  • Student Loan Forgiveness Programs By State
  • President Biden’s Student Loan Forgiveness Plan
  • Public Service Loan Forgiveness
  • Borrower Defense To Repayment
  • For-Profit College Student Loan Forgiveness List
  • Private Student Loan Forgiveness
  • Trade School Loan Forgiveness Programs

Student Loan Refinance

  • Best Student Loan Refinance Companies
  • Best Student Loan Refinancing Bonuses And Promotional Offers
  • Lenders That Offer Student Loan Refinancing Without A Degree
  • How To Refinance An International Student Loan
  • Best Medical School Student Loan Refinancing

More On Student Loans

  • Top Student Loan Scams
  • Does The Government Profit Off Of Student Loans?
  • Statue Of Limitations Laws For Student Loans
  • What Should You Do With Your Old FFELP Loans?
  • How To Get A Refund Of Your Federal Student Loan Payments

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz