Student Loan Interest Rates Rise for 2024-2025

If you plan to take out a student loan after July 1, be prepared to pay more interest. The interest rates on federal student loans are increasing for the 2024-2025 school year.

The interest rate for undergraduate students will be 6.53 percent, up from the previous rate of 5.50 percent. Graduate students’ loan interest rates will increase to 8.08 percent from 7.05 percent. PLUS loans, available to graduate students and parents of undergraduates, will have an interest rate of 9.08 percent, rising from 8.05 percent.

Student loan interest rates are set each year based on the yield of the 10-year Treasury note, which is auctioned in May. According to Money.com, this yield influences the rates for federal student loans, leading to the adjustments announced for the upcoming school year.

The increase in interest rates means that students and their families will face higher costs when borrowing for education. Higher interest rates result in more interest accumulating over the life of the loan, which can significantly increase the total amount to be repaid.

For example, undergraduates borrowing $10,000 for a school year at the new rate of 6.53 percent will pay more interest over the repayment period than the previous rate of 5.50 percent. This change highlights the importance of careful financial planning and exploring all available options for funding education, such as scholarships, grants, and part-time work, to minimize reliance on loans.

Given these rate increases, students and their families must consider their financial plans carefully. Exploring scholarships and grants, which do not require repayment, can be a valuable strategy. Additionally, working part-time or during summer breaks can help reduce the amount needed to borrow.

Understanding the terms and planning for repayment is crucial for those who must take out loans. Federal loans often offer more flexible repayment options than private loans, so it’s beneficial to explore all federal aid options first.

As interest rates fluctuate annually based on economic factors, staying informed about these changes is vital for students planning their education funding. Monitoring Treasury note yields and other economic indicators can provide insights into future rate adjustments.