What are the interest rates associated with the different types of federal student loans?

As the cost of attending college continues to rise, more students and families are turning to federal student loans to fill financial gaps. But borrowing money for school comes at a cost-and understanding that cost is essential to long-term financial health.

Interest rates and fees on federal student loans directly affect how much you’ll ultimately repay, even if federal loans tend to offer lower rates than private lenders.

For the 2024-2025 academic year, new fixed interest rates and loan fees have been announced for federal student loans. These rates apply to loans first disbursed between July 1, 2024, and June 30, 2025.

2024-2025 Federal Student Loan Interest Rates and Terms

Federal student loans come in several forms: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Here’s how they compare this year:

• Direct Subsidized and Unsubsidized Loans (Undergraduate): 6.53% fixed interest
• Direct Unsubsidized Loans (Graduate or Professional students): 8.08% fixed interest
• Direct PLUS Loans (Graduate students and parents of undergraduates): 9.08% fixed interest

These interest rates are locked in for the life of the loan and are based on the 10-year U.S. Treasury note plus a margin set by Congress. If you received loans in earlier years, your interest rate may be different.

Along with interest, federal student loans also include a loan origination fee, which is deducted from the amount disbursed to you but still must be repaid in full. For loans disbursed between October 1, 2020, and October 1, 2025, the fees are:

• 1.057% for Subsidized and Unsubsidized Loans
• 4.228% for PLUS Loans

Federal loans accrue interest daily. On unsubsidized and PLUS loans, interest begins accruing immediately-even while you’re in school or during deferment. Subsidized loans, by contrast, do not accumulate interest while you’re enrolled at least half-time or during approved deferment periods.

Here’s how daily interest is calculated: Interest = (Outstanding Principal × Interest Rate ÷ 365) × Number of Days Since Last Payment

For example, a $10,000 unsubsidized loan at 6.8% interest accrues $1.86 daily. If interest isn’t paid during a six-month deferment, $340 in unpaid interest will capitalize-meaning it’s added to the loan’s principal balance. That increases your daily interest going forward and can make the loan more expensive over time.

Capitalization can happen when you exit a deferment or income-driven repayment plan. It leads to higher future interest charges and, in some cases, larger monthly payments.

Loan repayment options include Standard, Graduated, and Extended Plans, as well as income-driven plans that cap payments based on income and family size. However, income-driven plans can lead to unpaid interest if monthly payments don’t cover what’s accruing. While this unpaid interest may eventually be forgiven, it can add complexity and cost.

Borrowers who enroll in automatic payments may qualify for a 0.25% interest rate reduction, a small but helpful incentive to stay on top of payments.

Federal student loans also come with borrower protections like deferments for economic hardship, Public Service Loan Forgiveness, and Teacher Loan Forgiveness. These benefits make federal loans more flexible than many private options-but only if borrowers understand the terms.

Before taking out a loan, use the loan simulator at studentaid.gov to estimate your payments, explore repayment plans, and compare total repayment costs based on your chosen loan type.

If you have questions about your loans or want to explore consolidation or forgiveness programs, reach out to your loan servicer. The more informed you are, the better prepared you’ll be to manage student debt effectively.