Federal Student Loan Rates to Rise, Making Other Options Better for Some

Federal student loan rates are edging up next year, but that shouldn’t be surprising, experts said.

Elevated inflation has pushed Treasury yields higher as investors increasingly forecast the Federal Reserve’s next rate move to be an increase instead of a cut. Government student loan rates are determined by the Treasury’s May auction of 10-year notes plus a fixed margin set by Congress. Last month’s auction produced a 10-year yield of 4.47%, up from 4.34% in 2025.

The jump in the 10-year yield pushed up federal student loan rates for families planning to take out a federal student loan for the 2026-27 academic year, experts said. Rates on these loans are fixed for the life of the loan.

“The rate increase is what we call 10 basis points or a tenth of 1%, a relatively de minimis amount, but it still adds to the cost of education,” said Jack Wallace, director of government and lender relations at student loan refinancer Yrefy.

What Will Student Loan Interest Rates Be for 2026-27?

Using the 4.47% 10-year Treasury yield from May’s auction and adding the margin for each loan type, rates are expected to be:

Undergraduate loans: 6.52% (4.47% + 2.05%), up from 6.39% for 2025-26
Graduate loans: 8.07% (4.47% + 3.60%), up from 7.94%
Parent PLUS loans: 9.07% (4.47% + 4.06%), up from 8.94%

Should Families Take Out Student Loans at These Rates?

For undergraduate students, experts generally believe federal student loans remain a good option.

“Undergraduate federal rates are still pretty favorable,” said Stacey MacPhetres, senior director of education finance at Bright Horizons, a provider of educational advisory services. “As usual, consider that as a first borrowing option. The student becomes the borrower for the loan and so has skin in the game.”

Since the student is the borrower, the undergraduate loan also can help young adults build their credit, Wallace said. A high credit score tells lenders you’re a reliable borrower and can make life cheaper. A good credit score allows you to receive easier loan approvals, significantly lower interest rates and can even help you secure housing or a job.

Undergraduate loan amounts also are capped, “so, there’s safety,” MacPhetres said. “Then, they have federal protections,” such as temporary relief options like deferment and forbearance that can help during life changes such as a layoff.

However, the math changes for other types of student loans, experts said.

“Beyond the undergraduate loans, people really need to do homework this year, understand the options and what their credit (score) will make available to them,” MacPhetres said.

Since President Donald Trump’s administration is capping the amount graduates and parents can borrow from the federal government, private lenders expect high demand for their loans to fill any gaps people may have. Competition among private lenders for that business could work in a borrower’s favor, resulting in lower rates and better terms, experts said.

“At end of the day, lenders are offering more competitive loan programs and that’s good for students and families,” MacPhetres said.

For example, the federal Parent PLUS loan will be more than 9% plus fees, or a percentage of the total loan amount. For parents with good credit, private loan rates can be between 3% and 7%, she said.

“For the ‘typical borrower,’ rates can be anywhere between 4.5% and 14%, and no fees,” MacPhetres said. Because of the fees, even private loan rates at or above 9% may still be competitive, so people need to do the math, she said. A typical borrower generally means middle- to high-income earners without adverse credit histories.

However, MacPhetres emphasized that loans should be the last payment method to consider. “We always encourage people to eliminate all payment methods before borrowing,” she said. Check first on employer benefits, grants, scholarships and other ways to pay that may not require repayment.

What’s the Best Strategy to Pay for School?

Planning should begin before anyone’s even applied to schools, Wallace said.

“Look at what school you want to go to and get into,” he said. “A lot of people don’t have that conversation about what they can afford, but the One Big Beautiful Bill is trying to bring that focus upfront now” by capping some loan amounts. “Families need to have those conversations, not when the acceptance letter comes in, but when families are looking in the fall or at Thanksgiving.”

If that window has passed for you, spend the summer looking at scholarship and grant sites like Fastweb, College Board, College Ave and Sallie, Wallace said. Scholarships and grants are ideal because they do not need to be repaid, so collect as many as you can.

Complete the Free Application for Federal Student Aid (FAFSA), which has been open since last September for the 2026-27 school year.

“Get your act together now” because FAFSA aid is first come, first served, Wallace said. “And it works well now. After two years of not opening on time, this past year, it did in September.”

Students get three shots at money for school because the federal government, state government and institutions use FAFSA to make scholarship, grant and financial aid decisions. About 85% of people who complete FAFSA receive some type of aid, Wallace said.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY.