What is the average interest rate on a student loan?

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College can be expensive, and taking out federal student loans can be one of the easiest ways to pay for higher education. Though this option comes with the added fees of student loan interest rates, federal loans are still one of the most reliable resources for making a dent in college payments. Data gathered from borrowers of all types of loans have an average student loan interest rate of 5.8%.

Where you take out a loan may affect the interest rate. Federal student loans in the 2020-2021 academic year have an average interest rate of 4.12%. Private student loans can sometimes have higher student loan interest rates. The average interest rate for private student loans ranges from 6% to 7%, just slightly higher than the interest rate for federal student loans.

To better understand the difference between federal student loans and private student loans, read this guide. Bold.org is home to many free resources for college students, no matter where they are in their financial or educational journey.

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Scholarships are one possible way to pay for college without incurring high student loan interest rates. Unlike federal loans, scholarships do not need to be repaid at all and have no interest rate whatsoever. Start applying for scholarships today to raise money for college. Use the filtered scholarship search to save time and effort and narrow down your results.

Nearly anyone with U.S citizenship who is enrolled in a college or university can apply for federal loans, including direct subsidized loans, direct unsubsidized loans, direct plus loans, and direct consolidation loans. Most federal student loans have a fixed interest rate, meaning the interest rates will remain the same for the duration of the loan. The fixed interest rates of your loan will likely depend on what type of loan you apply for.

  • Direct subsidized loans

Eligible undergraduate students can apply for this type of loan by demonstrating financial need. This might mean showing that your family’s overall income is below a certain level and that it isn’t possible for you to pay for college without help. Typically, the interest rate for direct subsidized loans is 4.99%.

  • Direct unsubsidized loans

Undergraduate, graduate, and professional students can all apply for this type of loan. Unlike direct subsidized loans, direct unsubsidized loans do not require applicants to show demonstrated financial need. An interest rate of 4.99% is typical of this kind of loan.

  • Direct plus loans

Graduate and professional students, provided they meet the requirements, can apply for direct plus loans. The parents of dependent undergraduate students can also apply for this loan to pay for educational expenses. Though having demonstrated financial need is not required, applicants will need to do a credit check. The interest rate for a direct plus loan is 7.54%.

  • Direct consolidation loans

This is not a singular type of loan, but rather a way to combine each of the previous types of federal loans. This can be helpful for borrowers who are eligible for multiple types of federal loans and take out more than one loan. Consolidating your loans combines multiple loans into one loan. The interest rate for this one loan will likely depend on what types of loans you combined.

Is student loan interest compounded or simple?

To put it simply, compound interest refers to when the interest fees you pay increase your overall payments over time. The interest rate is calculated by taking a percentage of the main, or principal payment. Compounded interest adds the interest fees back into the principal payment, meaning the amount of interest is increased for the next payment.

Compounded student loan interest rates are more difficult to pay back because they usually end up more expensive than loans with simple interest. Simple interest loans calculate the interest rate by taking a flat percentage of the principal payment. The loan payments a borrower makes will have a consistent interest rate, unlike compound interest loans, which may result in gradually increasing payments over time.

Federal student loans will typically have a simple interest rate. For example, direct unsubsidized loans and other federal loans all have a fixed interest rate.

Borrowers who take loans from private lenders may be subject to compounded interest rates. In addition, your credit score may carry more weight with private lenders than with federal student loans. Private lenders will assess your creditworthiness on numerous factors, meaning that it can sometimes be easier to get a loan through a federal program.

Student loan refinancing refers to taking your existing loans and packing them into a single, new loan. Borrowers will typically do this to get a lower interest rate, which means the loan will be easier to pay back. Because student loan refinancing can help you decrease your interest rate, it may be worth looking into in order to save you money in the long run.

Interest rates can increase the difficulty of repaying a loan whether you borrow from private lenders or take out federal loans. Make sure to understand whether your loan will have a compounded interest rate or a simple interest rate.

What will the interest rate for student loans be in 2023?

The interest rate for federal loans increases slightly from year to year. While interest rates in 2021 and 2022 started from 3.73%, 5.28%, and 6.28%, rates in 2022 and 2023 will be slightly higher.

A direct subsidized loan in 2023, for example, should have an interest rate of 4.99%. This rate is the same for direct unsubsidized loans. Graduate and professional loans will increase to an interest rate of 6.54%, and direct plus loans will have an interest rate of 7.54%.

These yearly interest rate increases will only affect new borrowers. A fixed interest rate means that the interest rate is stable over time. Borrowing from 2021 to 2022 means that you get to keep those lower interest rates even though interest rates will increase for new borrowers.

The average interest rate will typically rise from year to year. This increase may be even more noticeable with private lenders, who are able to set interest rates with more freedom than federal lenders.

Do student loans affect your credit score?

Student loans are a type of installment loan, meaning agreed-upon payments are made at regular intervals. Car loans, for example, are also installment loans. This kind of loan will be a part of your credit history and has the potential to make an impact on your credit report.

Making your loan payments on time can actually help your credit score, as this shows you are a responsible borrower who is financially capable of repaying your student loans and interest rates. To make a positive impact on your credit score, loan payments must be paid on time and in full.


However, falling behind on your payments may negatively affect your credit score. Making a late payment just once can decrease your credit score. Your credit score is impacted by several different factors.

The payment history represents the most important factor in keeping your credit score healthy. Payment history accounts for 35% of your overall credit score, meaning it’s important to make your payments on time and in full to maintain a good credit score.

Other factors, such as how long your credit history is or how far back it stretches, affect your credit score less. For example, the length of credit history makes up 15% of your credit score.

Frequently asked questions about student loan interest

Why are student loans hard to pay off?

Student loans can be very difficult to pay off because of the student loan interest rates. Along with making regular loan payments, borrowers will also need to keep up with the interest rate payments.

Though federal loans typically have fixed interest rates, the longer it takes to pay off the loan, the more money it will cost you in total because of the interest rate. Having private student loans that raise the interest rate can be even more difficult to pay back. Private lenders who try to take advantage of borrowers by continuously raising the interest rates can be incredibly difficult to deal with and may cause the borrower to spend much more time than necessary paying off their loans.

The federal government recently put together the student loan forgiveness program to help borrowers who struggle to repay their debt and student loan interest rates. This program has the potential to completely cancel any student debt depending on the qualifications of the applicant. To see if you qualify for student loan cancellation, read our ultimate guide on student loan forgiveness.

Do student loans ever go away?

Student loans will no longer require your attention after they have been completely paid off. It is definitely possible to totally pay off your student loans, including the student loan interest rates, in a timely manner.

The faster you pay back a student loan, the less money you will have to pay overall. However, a borrower’s ability to pay back the loan and interest rate payments is often affected by several factors, such as their financial situation, salary, dependents, and more. It’s easier for some to pay off their loans than others.

Making consistent payments so you don’t get behind is a good way to set yourself on track to getting rid of your student loan debt for good. Though it may be difficult to make payments at first, doing your best to keep your interest rate fees from piling up can be very helpful later on.

Once a student loan is completely repaid, including the interest rate, borrowers will no longer need to make payments or worry about their debt.

Applying for scholarships can be a good way to start making money in college. Scholarship funds can go towards repaying your student loans as well as paying off educational fees. Check out the scholarship page on grants for repaying student loans to find scholarships that can help you repay your debt.

Start applying for scholarships today to decrease your student loan debt. The scholarship blog has other helpful resources to help you navigate scholarships and student loans so that you can make informed decisions about your financial future.