Tornadoes touch down in Marion, Plainview

MPR News helps you turn down the noise and build shared understanding. Turn up your support for this public resource and keep trusted journalism accessible to all. 

Turn Up Your Support

With so much talk these days of when or whether President Biden will broadly cancel student debt – and with payments and interest on that debt paused for more than two years – it's easy to forget that the federal student loan 

 remains unchanged. And one part of that system is about to deliver a shock to many borrowers: Interest rates are going up, likely by quite a bit. 

"We're going to get bad news," says Robert Kelchen, an expert on higher education finance at the University of Tennessee, Knoxville. 

Interest rates on federal student loans are fixed, like a mortgage. A student who took out a new, undergraduate loan for this school year got a good interest rate: 3.73 percent. And that loan will remain at that rate for the life of the loan.

The wrinkle, says Kelchen, is that "every year, interest rates reset based on the 10-year Treasury yield, plus some additional amount," a premium added to help cover the government's costs.

 year will have to take out a new loan at a new interest rate. Federal student loan rates change every May, based on the U.S. Treasury Department's auction of 10-year notes, which is set for 

And that's bad news for borrowers because, this year, as with mortgage rates and virtually everything else, student loan interest rates are sure to rise. 

While we don't know exactly how much they'll rise, 

 by applying some basic math, spelled out in federal law, to the 

For example, undergrads' current 3.73 percent interest rate would jump to 5.1 percent. 

What's the difference between 3.73 percent and 5.1 percent? On a loan of $5,500 (the max for a first-year, dependent undergrad), a borrower would end up paying $435 more in interest over 10 years. 

The change could have an even bigger impact for graduate students and parents, who are allowed to take out larger loans but at higher rates than undergraduate borrowers (not to mention having to pay a larger loan fee upfront as well, 

Based on the latest 10-year Treasury rate, interest on loans for grad students is likely to jump from the current 5.28 percent to around 6.66 percent, and for parent PLUS loans from 6.28 percent to around 7.66 percent.

These loans aren't capped like undergraduate loans and are only limited by a school's price tag, which helps explain why 

the average yearly Parent PLUS loan tops $14,000.

 What difference would this potential interest rate hike make on that kind of loan? 

Over 10 years, a parent would end up paying an extra $1,194 in interest. 

The higher rate for parents, combined with larger allowable debt loads and less generous access to income-driven repayment options, 

has driven many families to financial ruin

For potential borrowers wondering if they could do better on the private loan market, "just remember, the federal student loan program is in large part making loans without any sort of credit check. Everybody gets the same terms. It's kind of no questions asked," says Jason Delisle, a senior policy fellow at the Urban Institute. 

And yes, Delisle says, "the rate is going to be a lot lower than what you would get in the private market for a similar kind of loan – if you could even find something like it." 

To see how much more you might have to pay in interest, there's no shortage of student loan calculators out there, including 

NPR is committed to reporting on pressing issues that matter to you, like student loans. 

 to stay up to date. You can support NPR's trusted, vital coverage by 

Education News

Cory Turner

Author

Student loan interest rates reset every May. This year, they're on the rise. 

Beware, new student loan borrowers: Interest rates are about to jump

Go Deeper.

Like this?

News you can use in your inbox