Federal student loan rates are rising next year, but that shouldn’t be a surprise, experts said.
Elevated inflation has pushed Treasury yields higher as investors predict the Federal Reserve’s next rate move will be a hike rather than a cut. Government student loan rates are set by the Treasury’s May auction of 10-year notes and a fixed margin set by Congress. The 10-year yield at last month’s auction was 4.47%, up from 4.34% due 2025.
The jump in 10-year yields has pushed federal student loan rates higher for families planning to take out federal student loans for the 2026-27 academic year, experts said. The rates on these loans are fixed for the tenure of the loan.
“The rate increase is let’s say 10 basis points or one-tenth of 1%, which is a relatively minimal amount, but it still increases the cost of education,” said Jack Wallace, director of government and lender relations at student loan refinancer Yrefy.
What will be the student loan interest rates for 2026-27?
Using the 4.47% 10-year Treasury yield from the May auction and adding a margin for each loan type, rates are expected to be:
- Graduate Loan: 6.52% (4.47% + 2.05%), up from 6.39% for 2025-26
- Graduate Loan: 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 rates?
For graduate students, experts generally agree that federal student loans are a good option.
“Graduation federal rates are still quite favorable,” said Stacey McFetres, senior director of education finance at Bright Horizons, an educational advisory services provider. “As always, consider this as an alternative to borrowing first. The student becomes the borrower for the loan and thus loses his life in the game.”
Since the student is the borrower, graduate loans can also help young adults build their credit, Wallace said. A high credit score tells lenders that you are a reliable borrower and can make life affordable. A good credit score can help you get easy loan approvals, get significantly lower interest rates, and even help you secure housing or a job.
Undergraduate loan amounts are also capped, “so, there’s protection,” McFetres said. “Again, they have federal protections,” including temporary relief options like deferment and forbearance that can help during life changes like layoffs.
However, experts said the math changes for other types of student loans.
“Beyond graduate loans, people really need to do their homework this year, understand the options and what their credit (score) will provide them,” McFettress said.
Since President Donald Trump’s administration is capping the amount graduates and parents can borrow from the federal government, private lenders expect there will be high demand for their loans from people to make up for any shortfall. Experts said competition among private lenders for that business could work in the borrower’s favor, resulting in lower 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,” McFettress said.
For example, the Federal Parent PLUS Loan will have a fee greater than 9%, or a percentage of the total loan amount. Private loan rates for parents with good credit can range between 3% to 7%, he said.
“For the ‘typical borrower,’ rates can be anywhere between 4.5% and 14%, and there will be no fees,” McFetres said. Because of the fees, personal loan rates at 9% or above may still be competitive, he said, so people need to do the math. A typical borrower generally means a moderate to high income earner without an adverse credit history.
However, McFetres emphasized that loans should be the final payment method to consider. “We always encourage people to exhaust all payment methods before borrowing,” he said. First check employer benefits, grants, scholarships, and other methods of payment that may not require repayment.
What’s the best strategy to pay for school?
Wallace said, anyone should start planning before applying to schools.
“See what school you want to go to and get in,” he said. “Many people don’t have conversations about what they can afford, but the One Big Beautiful Bill is trying to bring that focus to the fore by limiting some loan amounts,” she said. “Families need to have these conversations, not when the acceptance letter comes, but when families are considering fall or Thanksgiving.”
If that time has passed for you, spend the summer looking at scholarship and grant sites like Fastweb, College Board, College Avenue and Sally, Wallace said. Scholarships and grants are ideal because they don’t 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.
“Start your work now,” Wallace said, because FAFSA assistance is first-come, first-served. “And it works well now. After not opening on time for two years, last year, it opened in September.”
Students get three pennies for school because the federal government, state government, and institutions use the FAFSA to make scholarship, grant, and financial aid decisions. About 85% of people who complete the FAFSA receive some type of assistance, Wallace said.
Medora Lee is the money, markets and personal finance reporter at USA TODAY.