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Federal student loan interest rates will edge up next year, but that’s not surprising, experts say.
Investors are increasingly expecting the Federal Reserve’s next rate cut to be a rate hike, not a cut, and rising inflation is pushing up U.S. Treasury yields. The government’s student loan interest rate is determined by the Treasury Department’s 10-year bond auction in May, plus a margin set by Congress. Last month’s auction brought the 10-year bond yield to 4.47%, up from 4.34% in 2025.
Experts say the rise in the 10-year Treasury yield has increased federal student loan interest rates for households planning to take out federal student loans in the 2026-27 school year. The interest rate on these loans is fixed for the life of the loan.
“While the rate hike is relatively small at so-called 10 basis points, or one-tenth of 1%, it still increases the cost of education,” said Jack Wallace, director of government and lending at student loan refinance firm Illefee.
What will student loan interest rates be in 2026-2027?
Using the 4.47% 10-year Treasury yield from the May auction and adding the margins for each loan type, we would expect the interest rate to be:
- Undergraduate loans: 6.52% (4.47% + 2.05%), up from 6.39% in 2025-26
- Graduate loans: 8.07% (4.47% + 3.60%), up from 7.94%
- Parent Plus Loan: 9.07% (4.47% + 4.06%), up from 8.94%
Should families take out student loans at these interest rates?
Experts generally believe that federal student loans remain a good option for undergraduate students.
“The federal rate for undergraduates is still pretty favorable,” said Stacey McFetress, senior director of education finance at Bright Horizons, an education advisory service. “As always, think of this as your first borrowing option. Students will be loan borrowers, so they’ll be in the game.”
Because students are the borrowers, Wallace said undergraduate loans also help young people build credit. A high credit score tells lenders that you are a reliable borrower and can make your life cheaper. A high credit score makes it easier to get approved for a loan, gets significantly lower interest rates, and can even help you secure a home or job.
There is also a cap on the amount of undergraduate loans, “so it’s safe,” McFettle said. “And they have federal protection.” This includes temporary relief options such as deferrals and forbearance to help with life changes like layoffs.
However, experts say the math changes for other types of student loans.
“Beyond undergraduate loans, people really need to do their homework this year and understand their options and what their credit (scores) have available to them,” McFettle said.
Private lenders expect high demand for loans to help people fill the gap, as President Donald Trump’s administration caps the amount graduates and parents can borrow from the federal government. Experts say competition among private lenders for that business could work in favor of borrowers, resulting in lower interest rates and better terms.
“At the end of the day, lenders are offering more competitive loan programs, and that’s good for students and families,” McFettle said.
For example, federal Parent PLUS loans are 9% or higher plus fees, or a percentage of the total loan amount. For parents with good credit, private loan interest rates can range from 3% to 7%, she said.
“For the ‘typical borrower’, interest rates are between 4.5% and 14% and there are no fees,” McFettle said. People need to do the math, she said, because private loan rates above 9% can still be competitive because of fees. The typical borrower is generally an upper-middle-income person with no adverse credit history.
However, Mr McFettle stressed that loans should be the last payment method considered. “We always encourage people to eliminate all payment methods before borrowing,” she said. First, check your employer’s benefits, grants, scholarships, and other forms of payment that don’t need to be repaid.
What is the best strategy for paying for school?
Wallace said planning needs to start before someone applies to a school.
“Think about which school you want to go to and enroll,” he said. “Many people don’t really talk about how much they can afford, and the One Big Beautiful Bill seeks to focus on that by putting caps on some loan amounts.”
If that deadline has passed, spend the summer looking at scholarship and grant sites like Fastweb, College Board, College Ave and Sallie, Wallace said. Scholarships and grants don’t have to be paid back, so collect as many as you can.
Complete the Free Application for Federal Student Aid (FAFSA), which has been accepted since last September for the 2026-27 academic year.
FAFSA aid is first come, first served, so “act now,” Wallace said. “And now it’s working well. We didn’t open on time for two years, but last year we opened in September.”
Federal and state governments and educational institutions use the FAFSA to make scholarship, grant, and financial aid decisions, so students can receive their tuition money three times. About 85% of people who complete the FAFSA receive some type of aid, Wallace said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
