Surprise Drop: The Government Just Lowered Student Loan Rates — See What You’ll Pay Now

If you or someone in your family is planning to take out student loans for college this coming year, there’s a bit of good news you’ll want to hear. The federal government is lowering interest rates on new student loans starting July 1, 2025.

No, it’s not a huge drop — just a slight decrease — but when you’re dealing with thousands of dollars in loans, even a small difference can save you some money in the long run.

Let’s break down why this happened, who it impacts, and what you should do next.

Why Did the Department of Education Lower Interest Rates?

It comes down to how student loan interest rates are set. Every spring, the government looks at the results of the 10-year Treasury note auction in May. That number helps determine how much interest students will pay on federal loans for the next academic year.

This year, the Treasury yield came in a little lower than last year — which triggered the drop. So it’s not because of a new law or policy change, just a regular adjustment based on how the economy is doing.

The New Interest Rates for Federal Loans (2025–26)

If you’re borrowing federal student loans between July 1, 2025, and June 30, 2026, here’s what the interest will look like:

• Undergraduate students: 6.39% (was 6.53% last year)

• Graduate students (unsubsidized loans): 7.94%

• Parent and Grad PLUS loans: 8.94%

So yes — rates are still high, but this is a slight improvement over last year. If you’re borrowing, you’ll be paying a bit less in interest overall.

Who This Affects

This change only applies to new federal student loans taken out for the 2025–26 academic year. So:

• If you’re an incoming freshman or returning student who’s borrowing more, this is good news.

• If you’re a parent planning to help cover costs with a PLUS loan, you’ll get this lower rate too.

• If you already have student loans from past years, nothing changes for you — your rates are fixed.

Does This Actually Save You Money?

Yes — but don’t expect a windfall. A 0.14% drop isn’t life-changing, but over time it does help.

For example, if you borrowed $10,000, you’d save around $80 to $100 over the life of a 10-year loan compared to last year’s rate. Not massive, but hey, that’s a few weeks of groceries, a couple of textbooks, or a small emergency fund.

And when you’re budgeting for college, every little bit counts.

What You Should Do Now

Here’s what makes sense right now:

• If you’re planning to go to college this fall, make sure you file your FAFSA (if you haven’t already). These lower rates will apply to the new loans disbursed after July 1.

• If you’re already borrowing, be mindful that each loan year has its own interest rate. So your loans from this year may cost you less to repay over time than those from previous years.

• If you’re already paying off loans, this doesn’t affect you — but it might be worth looking into repayment plans or refinancing options (with caution).

The Bigger Picture

Let’s be honest: college is expensive, and most students are borrowing at some point. So while this change won’t solve the student debt crisis, it’s a small financial break that helps — especially as other living costs keep rising.

The key is to stay informed, understand how much you’re borrowing, and have a plan for repayment when the time comes.