Federal student loans will be more expensive this fall than they were last year, but the interest rates will still be lower than what it was before COVID.
Based on the May 10-year Treasury note auction, the interest rates for federal student loans are determined. This auction was held on May 12th, and now we know the interest rates applicable to student loans from July 1, 2021, to June 30, 2022.
These are new Federal Student Loan Rates For Academic Year 2021/2022
Based on today’s 10-year Treasury auction we will see these rates for the year 2021-2022:
| Undergraduate Borrowers | Professional Borrowers or Graduates | Parents, Graduate and Professional Students |
| 3.73% | 5.28% | 6.28% |
| Subsidized Direct Loans and Unsubsidized Direct Loans | Direct Unsubsidized Loans | Direct PLUS Loans |
The chart shows the interest rates for loans that were first paid on or after July 1, 2021, and up to June 30, 2022. These rates are fixed and will not change over the life of your loan.
This is a 0.98% rise over current rates.
All Federal Loans currently have 0% interest because of the COVID-19 emergency relief flexibilities. This extension will continue through September 30, 2021. This extension means that interest and payments will not begin on federal student loans with qualifying criteria until September 30, 2021.
Federal Student Loan Rates: How They Are Set
Federal student loan interest rates for the coming school year are determined based on the May 10th Treasury auction plus an additional interest rate.
We get the rates above because the May 2021 10-year Treasury yield of 1.68% was in effect. The 10-year Treasury yield was 0.70% last year.
These formulae are used by the Department of Education:
- Student Direct Loans to Undergraduate Borrowers: 10% Treasury yield plus 2.05%
- Direct Loans for Professional or Graduate Borrowers: 10 Year Treasury Yield plus 3.60%
- Direct PLUS loans: 10 years Treasury yield plus 4.60%
Higher than the previous year, but lower than the pre-COVID
Despite being 0.98% higher than current AY20/21 Federal Student Loan Rates, they still remain lower than their pre–COVID levels.
| Loan Type | Undergraduate Borrowers | Professional Borrowers or Graduates | Parents, Graduate and Professional Students |
| AY21/22 | 3.73% | 5.28% | 6.28% |
| AY20/21 | 2.75% | 4.30% | 5.30% |
| AY19/20 | 4.53% | 6.08% | 7.08% |
| AY18/19 | 5.05% | 6.60% | 7.60% |
| AY17/18 | 4.45% | 6.00% | 7.00% |
| AY16/17 | 3.76% | 5.31% | 6.31% |
| AY15/16 | 4.29% | 5.84% | 6.84% |
| AY14/15 | 4.66% | 6.21% | 7.21% |
| AY13/14 | 3.86% | 5.41% | 6.41% |
Fees to Federal Student Loans
Federal student loans also have fees. These fees are a percentage of the loan amount. These fees are similar to the fixed interest rates and vary depending on the type of loan. They are also set annually. This fee is deducted from every loan you receive while you are enrolled at school.
For example, a 4.228% fee means if you want your school to receive $10,000 in disbursement, you need to “effectively” borrow $10,441.5 (=$10,000/(1-4.228%)) in principal for that student loan to cover the fee, so that your school will receive $10,000. Or if you borrow for $10,000 in principal, your school will then only receive $9,577.2 (=$10,000*(1-4.228%)) actual disbursement.
Current
| First disbursement date | Loan Type | Loan Fee |
| Between 10/1/20 – 10/1/21 – | Direct Subsidized Loans & Direct Unsubsidized Loans | 1.057% |
| Direct PLUS Loans | 4.228% |
What’s APR?
The interest rate represents the cost of borrowing money. The accrued interest is added each month to your monthly payment until you have paid the principal in full.
The APR also includes any origination fees or other costs you may have to pay when signing your loan agreement. These are often called closing costs by mortgage lenders when you take out a home loan. The Truth in Lending Act requires lenders to disclose the APR prior to you signing a loan or taking on a credit obligation. Your APR will typically be higher than your interest rate offers.
Calculating APR
Once we know the fees for each type of loan, it is time to calculate the monthly payment amount. Instead of using a calculator or pen, you can open excel or google sheets to type the following formula.
=PMT(rate,nper,pv)
Where:
- Rate is the interest rate divided into 12 (to obtain the monthly rate instead of the annual rate).
- NPER is the number or the length of the payment period, in months, that you will make on the loan to repay it
- PV refers to the principal or present value of the loan, minus any upfront fees.
You can now use the payment figure to calculate Excel’s APR using the following:
=RATE(NPER,PMT,PV)
Where:
- NPER is the same amount of payment periods as you used before
- You have calculated the PMT is set monthly payment amount above
- PV refers to the principal amount but does not include any upfront fees.
APR Federal Student Loans
Want to see an example of APR vs. interest rate in action? We have solved each federal loan type over a ten years repayment period.
APR on Direct Loans First Disbursed On or After July 1, 2021, and Before July 1, 20,22
| Borrower Type | Loan Type | Fixed Interest rate | APR* |
| Undergraduate Borrowers | Direct Subsidized Loans & Direct Unsubsidized Loans | 3.73% | 3.96% |
| Graduate and professional borrowers | Direct Unsubsidized Loans | 5.28% | 5.51% |
| Parents and Professional Students | Direct PLUS Loans | 6.28% | 7.25% |
| *Calculated using a 10-year period |
What if you plan to refinance the loan or repay it in less than ten? The upfront fees will increase your effective APR.
How a Difference Fees Could Make
Although the interest rate is a useful indicator of your monthly payments, it’s not the only thing that matters. It is important to calculate your APR using your expected repayment time in order to determine the cost of borrowing from lenders, regardless of whether you are applying for a federal student loan or a private student loan.
