More and more Americans are taking on student loan debt to finance their higher education pursuits. So far in 2022, U.S. student loan debt nearly totaled a whopping $1.75 trillion, with the average federal student loan borrower owing an average of $38,000.
The total amount owed by a borrower comes down to how much they’re paying in student loan interest. A higher interest rate means a borrower will pay more money over the life of the loan than a borrower with the same loan amount and a lower interest rate.
As of 2022, the average student loan interest rate across private and federal student loans was 5.8%. However, the rate you end up paying could be significantly more or less than the average, depending on several factors, such as who’s taking out the loan, the type of loan and the loan provider. As the economic impacts of the COVID-19 pandemic evolve, student loan interest rates are steadily rising.
Learn how the average interest rates for federal and private student loans differ and why it’s important to understand these rates.
Average federal student loan interest rate
Federal student loans are considered “daily interest” loans because the interest accrues daily as soon as a borrower takes out the loan (except in the case of Direct Subsidized Loans, upon which interest only accrues after the student’s grace period ends). Federal student loans typically have fixed interest rates that don’t change during the loan term. Depending on the type of federal student loan you have, average interest rates vary.
Per the U.S. Department of Education, the current federal student loan interest rates on loans “disbursed on or after July 1, 2022, and before July 1, 2023” are as follows:
- Direct Subsidized Loans and Direct Unsubsidized Loans for Undergraduates: 4.99%
- Direct Unsubsidized Loans for Graduate or Professional Students: 6.54%
- Direct PLUS Loans for Parents/Graduate or Professional Students: 7.54%
How are federal student loan interest rates determined?
Federal student loans account for 92.7% of all student loan debt, so how federal rates are determined impacts a vast majority of borrowers.
The interest rates on federal student loans are set by the U.S. Department of Education and are passed each year by Congress. Federal student loan interest rates are based on the high yield of the last 10-year Treasury note auction, which takes place in May. The rates are set on July 1 of each year and are in effect until June 30 of the following year.
Different types of federal student loans are calculated using their own formulas. Here are the formulas used for each:
- Direct Subsidized Loans and Direct Unsubsidized Loans for Undergraduates: 10-year Treasury note + 2.05%, capped at 8.25%
- Direct Unsubsidized Loans for Graduate or Professional Students: 10-year Treasury note + 3.60%, capped at 9.50%
- Direct PLUS Loans for Parents/Graduate or Professional Students: 10-year Treasury note + 4.60%, capped at 10.50%
While federal student loan rates cannot be negotiated based on financial need, you can apply for financial aid by using the Free Application for Federal Student Aid (FAFSA).
Average private student loan interest rate
Unlike federal student loan interest rates, private interest rates can be either fixed or variable. Variable interest rates can change over the life of the loan. Banks, credit unions and online lenders each have their own criteria for setting rates. That being said, the average private student loan interest rates usually range between 6% to 7%. On the extreme ends of the spectrum, private rates can be as high as 12.99% or as low as 1.04%.
How are private student loan interest rates determined?
The reason private student loan rates fluctuate so drastically is that private lenders determine rates on a case-by-case basis. Lenders want to feel assured that a borrower can pay back the loan, so they look at a variety of factors related to a borrower’s creditworthiness and financial stability. Some common considerations include:
- Credit score
- Income
- Credit history
- Loan terms
- Career history
However, borrowers who have a credit score or financial history that isn’t up to par with a lender’s standards can apply with a co-signer. If applying with a co-signer, lenders will also look at their creditworthiness to determine interest rates, eligibility and terms of the loan.
Why student loan interest rates matter
Student loan interest rates matter because they influence the total amount of money a borrower will pay back on their loans. Knowing your interest rate can better prepare you to manage your money and budget for your monthly payments. If you’re applying for a private student loan, find out what rates you qualify for and then compare lenders to choose the best available rates and loan terms for your needs.
Even with the temporary pause on student loan interest in place, it’s important that you understand how interest rates impact your student loans and your overall financial situation. The federal government has been raising rates incrementally in 2022, and rates are predicted to continue going up. Private student loan rates are also rising again in response to action taken at the federal level.
Can I get a lower student loan interest rate?
It’s possible to lower your student loan interest rates on private student loans by strengthening your creditworthiness. You can work on improving your credit score in the following ways:
- Make consistent, on-time payments on your loan balance.
- Check your credit report for errors and resolve them.
- Apply for a secured credit card.
- Become an authorized user on someone else's credit card.
- Maintain a low credit utilization ratio.
Refinancing may also secure you a lower interest rate. When you refinance your student loan, a private lender will pay off your old loan(s) and replace it with a new one, sometimes at a lower rate or with better terms. This strategy could save you money in the long run and may help you pay off the balance more quickly. You can also refinance federal student loans, but doing so makes them private. This means government-sponsored programs unique to federal loans, such as income-driven repayment plans and loan forgiveness, would no longer be an option for you.
Should I refinance my student loans with First Republic Bank?
Paying off debts is a lot easier with lower interest rates. When you refinance your student loans with First Republic’s Personal Line of Credit, you’ll enjoy the following benefits:
- Low fixed rates: Potentially save money in the long term with a low, fixed-interest rate.
- Fewer fees: Enjoy no origination or prepayment fees.
- Flexibility: Choose from several loan term options that suit your needs.
In addition to refinancing student loans, a Personal Line of Credit can also be used to buy or refinance a car, make home improvements, pay for medical or dental procedures and more. Learn more about how a First Republic Personal Line of Credit can better help you reach your financial goals.
Note: By refinancing student loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness. Please consider this as you make a decision to refinance student loans, and talk to a banker if you have any questions. Currently, all payments for certain types of federal student loans are suspended, potentially until June 30, 2023, per an executive order by the President. Interest will not accrue during this time period. For more information, please visit ed.gov.
Banking products and services are offered by First Republic Bank, Member FDIC and Equal Housing Lender
1 Personal Line of Credit is an unsecured consumer loan that consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.
This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock and cryptocurrency), for speculative purposes, for business or commercial uses, for a down payment on any property or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination. Please note only debts that appear on your consumer credit report or student loans are eligible to be repaid at origination.
The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to reobtain such benefits if this loan is refinanced with another lender in the future.
Borrower must open a First Republic ATM Rebate Checking® account (“Account”). Terms and conditions apply to the Account.
2 Annual Percentage Rate. Rates effective as of October 19, 2022, and are subject to change.
If the Account is closed, the rate will increase by 5.00%. Rates shown include relationship-based pricing adjustments of: a) 2.00% for maintaining automatic payments and direct deposit with the Account, b) an additional 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and c) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account, with the option to deposit up to half of that 20% into an Eagle Invest account.
Eagle Invest is an investment advisory service offered by First Republic Investment Management, Inc., and sub-advised by BlackRock FutureAdvisor, Inc. (FutureAdvisor). First Republic Investment Management, FutureAdvisor and Fidelity Investments, Member FINRA/SIPC, are unaffiliated SEC-registered investment advisors. FutureAdvisor is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. $5,000 minimum investment required.
Investment Advisory Services are offered through First Republic Investment Management, an SEC-Registered Investment Advisor and a wholly owned subsidiary of First Republic Bank.
Investment and Advisory Products and Services are Not FDIC Insured, Not Bank Guaranteed and May Lose Value.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of use.
Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.
Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend. Loan approval is subject to a completed application with associated documentation and confirmation that income, liquidity, credit history and other application information meet the minimum requirements for this product. Applicants should discuss line of credit terms, conditions and account details with their banker.
© 1997–2022 First Republic Bank.
