Understanding the 2025 Federal Unsubsidized Loan Interest Rate: What Borrowers Need to Know
- alexliberato3
- Oct 3, 2025
- 14 min read
When it comes to paying for college, the federal unsubsidized loan interest rate is a number every student and parent should pay attention to. Each year, the government updates these rates, and even small changes can add up over time. For the 2025-2026 academic year, the rates have shifted again, and while the drop isn’t huge, it could still save borrowers some money. Understanding how these rates are set, what they mean for your monthly payments, and how they compare to private loans can help you make smarter decisions about borrowing for school.
Key Takeaways
The federal unsubsidized loan interest rate for undergraduates is 6.39% for 2025-2026, and 7.94% for graduate students.
Federal student loan interest rates are set using a formula tied to the 10-year Treasury note plus a set percentage, and rates are updated every July.
Interest rates are fixed for the life of each loan, so if you borrow over several years, you may have multiple loans at different rates.
Federal loans include fees like origination charges and late payment costs, but they no longer have prepayment penalties.
Federal loans usually offer more borrower protections and flexible repayment options than private student loans, but private rates may be lower for some borrowers with strong credit.
How the Federal Unsubsidized Loan Interest Rate Is Determined
The way the federal government decides what interest you’ll pay on an unsubsidized student loan isn’t random. There’s a set formula, and it gets a fresh calculation every year. This section explains that process without getting too lost in legal language.
The Formula Set by Congress
Congress determines the student loan interest rate using a fixed formula written into law. Every year, lawmakers decide how much borrowers pay in interest by tying the rate to a government financial benchmark, plus an added percentage called a margin.
The basic outline is:
Find the yield (interest rate) from the May auction of the 10-year U.S. Treasury note.
Add a specific margin (depends if you’re undergrad, graduate, or taking a PLUS loan).
Set that combined figure as the interest rate for new federal loans from July 1 to June 30 of the following year.
This structure means every undergraduate and graduate borrower gets the same rate for the academic year, regardless of credit or income.
Role of the 10-Year Treasury Note
The 10-year Treasury note is a bond—the government borrows money from investors for a decade, agreeing to pay back what they borrowed plus interest. In May each year, the interest rate (also called the yield) on this note is used as the baseline for setting federal student loan rates. That’s because the 10-year note is a good measure for the government’s cost to borrow money.
The higher the Treasury yield, the higher your student loan interest rate will probably be.
This link makes federal loan rates track the overall economy but with some built-in guardrails.
Loan Type | Formula | Lifetime Rate Cap |
|---|---|---|
Undergraduate (all types) | 10-year Treasury + 2.05% | 8.25% |
Graduate Unsubsidized | 10-year Treasury + 3.60% | 9.50% |
PLUS Loans | 10-year Treasury + 4.60% | 10.50% |
Annual Reset and Timeline for New Rates
Every spring, right after the May Treasury auction, the Department of Education announces the interest rates for new loans. Here’s how that schedule looks:
Treasury auction takes place in May.
Rates get announced—usually at the end of May or early June.
New rates apply to all federal loans issued from July 1 through June 30 the following year.
If you borrow across several years, you’ll have a mix of loans at different rates, since each year’s rate is fixed for the life of loans taken out that year.
Interest rates do not change after you take out the loan—it’s set in stone for as long as you’re paying on that particular loan.
The system is designed to be predictable, but it’s still responsive to economic shifts. For anyone planning to borrow, it’s smart to keep an eye on Treasury yields each spring, since a jump there likely means higher student loan rates starting in July.
Federal Unsubsidized Loan Interest Rate for 2025-2026
Official Rates for Undergraduate and Graduate Students
Federal student loan rates for the 2025–2026 academic year were set at a slightly lower level compared to last year. Here’s a breakdown of the current official rates for new loans disbursed between July 1, 2025, and June 30, 2026:
Loan Type | Applicable To | 2025-2026 Rate |
|---|---|---|
Direct Unsubsidized Loan | Undergraduates | 6.39% |
Direct Unsubsidized Loan | Graduates and Professionals | 7.94% |
PLUS Loan (for reference) | Parents/Grad Students | 8.94% |
All borrowers receive the same rate within each category, regardless of credit history or financial background. This reduces confusion and levels the playing field for those seeking financial aid through federal channels.
Comparison With Previous Academic Years
Over the past several years, federal student loan interest rates have shifted in response to economic conditions. Here’s a quick look at the trend for the last few cycles:
Academic Year | Undergraduate Rate | Graduate Rate |
|---|---|---|
2025-2026 | 6.39% | 7.94% |
2024-2025 | 6.53% | 8.08% |
2023-2024 | 5.50% | 7.05% |
2022-2023 | 4.99% | 6.54% |
2021-2022 | 3.73% | 5.28% |
Interest rates for federal loans peaked in the last few years and are still relatively high—historically 2.75% just a few years back.
The current rates mark the first small decline after multiple yearly increases.
Each new loan issued in a different year carries its own fixed rate, making it possible for ongoing students to have several loans at different rates.
Fixed Nature of Federal Loan Rates
Once you take out a federal unsubsidized loan, the interest rate on that loan is fixed for its entire lifetime.
The rate you receive applies only to the loan disbursed during that academic year; this does not retroactively change the rate for previous loans.
Borrowers who take out new loans each year of study will likely end up with multiple rates across different loan segments.
Payment calculations on old loans are not impacted by the annual rate reshuffling.
Even with the recent reduction in rates, current federal unsubsidized loans remain expensive compared to just a few years ago, which may have a noticeable effect on your total repayment amount over time.
Impact of the Federal Unsubsidized Loan Interest Rate on Borrowers
Monthly Payment Implications
The interest rate on your federal unsubsidized loan affects how much you'll pay each month after you leave college. For the 2025-2026 academic year, undergraduate borrowers will see an interest rate of 6.39%, and graduate borrowers 7.94%. Even small shifts in the interest rate can mean a noticeable change in your required payment.
Higher interest rates lead to higher monthly bills and more of your payment going toward interest at the start of your repayment.
Loan Amount | Interest Rate | Monthly Payment (10 years) | Total Interest Paid | Total Repayment |
|---|---|---|---|---|
$5,000 | 2.75% | $47.71 | $724.66 | $5,724.66 |
$5,000 | 6.39% | $56.49 | $1,779.35 | $6,779.35 |
Total Repayment Costs Over Time
The longer it takes to repay your loan, the more interest you'll end up paying. While your interest rate is set when you take out the loan, how you manage repayment will impact the total cost. Borrowers who stick to the standard 10-year plan generally pay less interest compared to those on extended or income-driven plans.
A few points to keep in mind:
If you make only minimum payments, interest adds up quickly, especially at higher rates.
Extra payments directly lower your interest cost over the life of the loan.
Deferment and forbearance mean interest still accrues on unsubsidized loans, increasing your balance.
Many people underestimate how much more expensive student debt becomes over time if you stretch out repayment or miss payments. Even a difference of one percent in your interest rate can lead to hundreds of extra dollars in interest.
Effect on Multi-Year Borrowers With Different Loan Rates
If you borrow new unsubsidized loans each year, you’ll likely end up with loans at different rates. Since federal loan rates are fixed for each loan but set annually, your total repayment will reflect a mix of rates.
Suppose you borrowed for four years:
Year 1 loan: 5.50%
Year 2 loan: 6.53%
Year 3 loan: 6.53%
Year 4 loan: 6.39% (see structured rate overview)
This means each chunk of your balance accrues interest at a different rate, making it harder to estimate monthly payments and total costs without a detailed breakdown.
You’ll repay multiple loans under one servicer, but balances at higher rates cost more over time.
Consolidating loans can combine them, but usually just averages the weighted rates.
Keeping track of each loan’s rate is important if you’re considering aggressive repayment or focusing extra payments.
Borrowers should be aware that their actual out-of-pocket loan cost will depend not just on the amount borrowed, but on when and at what rate they borrowed. Take some time to review each loan’s details in your federal aid account so you can prioritize repayment most effectively.
Comparing Federal and Private Student Loan Interest Rates
Understanding how federal and private student loan interest rates stack up against each other can influence how much college ends up costing over time. Both types of loans help fill the gap when it comes to educational expenses, but they work quite differently.
Current Private Student Loan Rate Ranges
Unlike federal student loans—which have the same rate for everyone—private lenders set their own interest rates. They look at market benchmarks, your credit history, income, and sometimes if you have a cosigner.
Loan Type | Rate Type | Interest Rate Range (2025-2026) |
|---|---|---|
Federal (Undergrad Unsubsidized) | Fixed | 6.39% |
Federal (Graduate Unsubsidized) | Fixed | 7.94% |
Private Loans | Fixed/Variable | ~2.99% – 17.99% |
Federal rates are always fixed. Private loans can be fixed or variable—meaning the rate can go up (or down) in the future. Some borrowers with excellent credit could qualify for rates at the lower end of the private loan range, but others may be offered rates much higher than what the government is charging.
Lenders update private rates often, unlike federal loans that reset once a year.
Factors Influencing Private Loan Rates
Private lenders consider several elements—not just your credit score. Here’s what often comes into play:
Credit score: Higher scores can unlock better rates.
Cosigner: A strong cosigner can help you get approved or qualify for a better rate.
Income and employment history: Stable income helps lenders feel confident in your ability to repay.
Loan term and type (fixed or variable rate).
Overall debt-to-income ratio.
This means students who are just starting out financially may have to pay more for private loans if they don’t have much of a credit history or a suitable cosigner.
Federal Borrower Protections Versus Private Loans
One major reason federal loans are popular: The protections and benefits that come standard. These include features such as income-based repayment, forbearance, and possible loan forgiveness. Private loans rarely match these options.
Federal loans have flexible repayment plans based on your income.
Borrowers can sometimes qualify for programs like Public Service Loan Forgiveness.
Federal loans allow for easier deferment and forbearance during hardship.
For private loans, what protections exist depends entirely on the lender’s policy.
If you’re picking between federal and private loans, remember that while some lenders might advertise low rates, they don’t necessarily provide the same security if your situation changes. And in recent years, federal rates have changed a lot—rising by 137.5% between 2020-21 and 2024-25—so always check what’s on offer this year before making your decision.
Additional Costs and Fees Associated With Federal Unsubsidized Loans
When you're looking at federal unsubsidized student loans, the interest rate is only part of the story. There are other costs you need to be aware of, and some of them catch borrowers by surprise. Understanding these fees and extra expenses can help you plan financially and avoid unwanted shocks down the road.
Origination and Disbursement Fees
Federal unsubsidized loans come with something called an origination fee. This is a percentage of your total loan amount, deducted before the money even reaches your school account. In other words, you borrow a certain sum but receive less — yet you'll repay the full amount (including the portion you never actually saw).
Here’s a quick look at how this fee can add up:
Loan Amount | Origination Fee (2025-26) | Funds Disbursed | Amount You Owe |
|---|---|---|---|
$5,500 | 1.057% ($58.14) | $5,441.86 | $5,500 |
$10,000 | 1.057% ($105.70) | $9,894.30 | $10,000 |
The fee changes slightly each year, so check the official rate before borrowing.
It’s subtracted right away; you don’t actually pay it as a bill.
You pay interest on the full amount, not just the portion received.
Late Payment and Collection Costs
Loan repayment doesn’t always go as planned. If you miss a payment, the servicer often charges a late fee. The penalty might be a flat dollar amount or a percentage of your monthly payment. If you fall behind long enough for your loan to go into default, that’s when collection costs come into play. At that point, a collection agency could add hefty fees — making it even harder to catch up.
Late fees are typically added after your payment is 30 days overdue.
In default, collection costs can balloon the total owed by up to 25% or more.
Collections are aggressive; wage garnishment and tax refund seizures are possible.
If you think you’ll miss a payment, it’s better to contact your servicer early and ask about your options rather than wait until extra fees begin to pile up.
Prepayment Policy Changes
In the past, some lenders charged you for paying off your student loan ahead of schedule. That has changed — thanks to legal updates, especially the Higher Education Act of 2008. Federal student loans can be paid off at any time without extra penalty. So, if you’re able to pay above the minimum or finish your consolidation loan early, you’ll save on interest and won’t face a penalty.
No prepayment penalties for federal unsubsidized loans.
Extra payments go directly toward bringing down your principal balance.
Paying off early can reduce the overall interest you owe.
Borrowers often focus just on interest rates, but fees and charges — especially if you hit a rough patch with repayment — matter just as much. Taking a little time to understand the entire fee structure can make a surprising difference in your total debt burden when you graduate.
Strategies to Minimize Interest Costs for Student Borrowers
Paying as little as possible in interest isn’t just about getting a low rate—it's about using the right approach from the time you start school until you finish paying off your loans. Here are a few ways students can keep overall costs down and keep more money in their pocket.
Paying Interest During School
Federal unsubsidized loans start accruing interest as soon as the funds are disbursed. This means the total you owe grows during school if you aren't making payments. Even making small interest-only payments while enrolled can save a lot over time.
Interest payments made during school prevent interest from being capitalized (added to the principal) when you begin repayment
Reduces the total amount of interest you’ll pay on your loan
Lessens the impact of compound interest after graduation
Even small monthly payments while you’re in school can make a big difference in how much you ultimately pay back.
Exploring Federal Repayment and Forgiveness Options
Once you graduate or leave school, federal loans offer several flexibility options. These can help keep payments manageable and possibly reduce your total costs:
Income-driven repayment plans – These limit monthly payments based on income and family size
Public Service Loan Forgiveness – For those working in government or nonprofit sectors, a portion of the loan could be forgiven after ten years of qualifying payments
Revised repayment plans – Adjust the timeline and total cost by switching plans as your situation changes
Certain plans might extend payments and increase overall interest costs, but they can offer relief if your monthly budget is tight.
Limiting Borrowing and Comparing Alternatives
Every borrowed dollar is a future repayment—so borrowing less means less interest, too. Before taking loans, it's wise to look at all your options.
Start with federal loans; they come with fixed interest and protections that private loans can’t match
Use scholarships, grants, or part-time work to reduce borrowing
Compare school costs carefully—community colleges or in-state schools can cost much less than private or out-of-state universities
A simple way to measure the impact of minimizing borrowing:
Borrowed Amount | 10-Year Total Interest @ 6.39% |
|---|---|
$5,000 | $1,779.35 |
$10,000 | $3,558.70 |
$15,000 | $5,338.05 |
For more insights on how early payments help reduce your total interest owed, consider paying more than the minimum whenever possible.
By staying proactive and exploring all available tactics, students can take control of their loans before interest piles up.
Recent Legislative Changes Affecting Federal Student Loans
Key Provisions of H.R. 1 and Future Updates
Congress has brought in some changes with H.R. 1, called the One Big Beautiful Bill Act, and it’s important to see what’s new for 2025 and beyond.
Federal student loan interest rates are still set by a formula created by Congress and reset each academic year.
H.R. 1 doesn’t change the way these rates are calculated, so that formula—based on the 10-year Treasury note plus an add-on—remains the law of the land.
However, H.R. 1 moves the needle in other areas, including eligibility and forgiveness programs, which could have indirect impacts on long-term costs or repayment flexibility.
There’s a lot of noise around legislation and its true effect, but the core formula for interest rates on federal loans hasn’t shifted much after H.R. 1 was signed.
Elimination of Graduate PLUS Loans
One of the bigger shifts tucked into H.R. 1 is the end of Graduate PLUS loans for new borrowers.
Starting July 1, 2026, new eligible graduate students will no longer be able to take out Graduate PLUS loans.
Existing Graduate PLUS loans and those issued before July 2026 are not affected—borrowers will continue to repay those under the original terms.
Grad students will need to rely more upon Direct Unsubsidized Loans and, if needed, private loans for any funding gaps. Direct Unsubsidized Loans are capped by annual and lifetime limits, so it’s worth reviewing your aid options well ahead of this change.
Consolidation and Adjustments to Repayment Plans
Several important tweaks address repayment and consolidation:
Borrowers with different types of federal loans can now consolidate them under new plan options without losing access to certain forgiveness programs.
The legislation instructs the Department of Education to review and simplify repayment plan options, aiming to reduce confusion and administrative hurdles.
There are also updated rules for how certain periods of deferment and forbearance count toward income-driven repayment and forgiveness timelines.
These updates are designed to make repayment more predictable and streamlined, especially for borrowers who juggle multiple federal loan types or experience financial challenges over time.
If you’re taking out or repaying federal loans in 2025 and beyond, it’s worth reviewing your borrowing and repayment strategy freshly each year. Legislative changes could affect how much you’re able to borrow, what types of loans you get, and the way your payments are structured.
Laws around federal student loans are always changing, and it can be hard to keep up. Some new rules might change how much you pay each month or help you with forgiveness. Want to learn how these updates affect you? See what’s new by visiting our website today!
Conclusion
Understanding the 2025 federal unsubsidized loan interest rate is important if you’re planning to borrow for school this year. While the rate has dropped a bit compared to last year, it’s still higher than what students saw just a few years ago. Remember, the new rate only applies to loans taken out for the 2025-2026 academic year, and any loans you already have will keep their original rates. Federal loans are still a popular choice because of their fixed rates and borrower protections, but it’s smart to look at all your options. Compare federal and private loans, check for fees, and think about how much you really need to borrow. Taking the time to understand how interest rates work can help you make better decisions and avoid surprises down the road.
Frequently Asked Questions
What is the federal unsubsidized loan interest rate for 2025-2026?
For the 2025-2026 school year, the interest rate on federal unsubsidized loans for undergraduates is 6.39%. For graduate students, the rate is 7.94%. These rates are fixed for the life of each loan you take out during this period.
How are federal unsubsidized loan interest rates set each year?
Each year, Congress uses a formula to set the interest rates. The rate is based on the yield from the 10-year U.S. Treasury note plus a set percentage. The new rate is announced in May and goes into effect on July 1 for loans taken out during the next academic year.
Will the interest rate on my current federal loan change when new rates are announced?
No, the interest rate on your current federal loan will not change. Federal student loans have fixed rates, which means your interest rate is set when you first take out the loan and stays the same until you finish paying it off.
How do federal unsubsidized loan rates compare to private student loan rates?
Federal unsubsidized loan rates are the same for everyone, but private loan rates can be higher or lower depending on your credit score, income, and the lender. Private loans can have fixed or variable rates, and they usually don’t offer the same protections as federal loans.
Are there extra fees with federal unsubsidized loans?
Yes, there are origination fees with federal unsubsidized loans. For loans taken out in 2025-2026, the origination fee is usually around 1% to 4% of the loan amount. This fee is taken out before you get your money, so you receive a bit less than you borrow.
What can I do to lower the total interest I pay on my student loans?
You can save money by paying interest while you’re still in school, borrowing only what you need, and looking into federal repayment or forgiveness plans after you graduate. Comparing all your options before borrowing can also help you avoid paying more than necessary.
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