How Federal Student Loan Interest Rates Are Set

Federal student loan rates are set by a formula in federal law, not by a market and not by the Department of Education’s discretion. Each year, the high yield from the last 10-year Treasury note auction held before June 1 gets a fixed add-on for each loan type, the result is capped by statute, and that rate applies to all loans of that type first disbursed in the award year starting July 1¹. Once your loan is disbursed, its rate is fixed for life; the annual reset only affects new loans.

For the 2026-27 award year, the rate-setting auction was held May 12, 2026 with a high yield of 4.468%, producing:

The figures above render from this site’s data pipeline, which reads the Treasury auction record directly, so this page reflects the current award year without depending on anyone updating an article.

What the Formula Means in Practice

Everyone gets the same rate. Federal rates are not underwritten: no credit check sets them, no cosigner improves them, and no applicant is quoted worse. That is a structural difference from private student loans, where the quoted rate depends on the borrower and the spread between applicants is wide. It is also why comparing a private lender’s advertised range against the federal rate misleads in both directions; the only fair comparison is your actual private quote against the fixed federal figure.

The rate is fixed at disbursement, per loan. A borrower who takes loans across four award years holds four rates, each fixed. In a year when the Treasury yield falls, waiting to borrow until after July 1 gets the new rate; in a rising year, the reverse. You cannot time it far in advance, but the setting auction happens in May, so by late spring the next year’s rate is arithmetic, not prediction.

The caps are a ceiling, not a promise. The statute caps rates at 8.25% for undergraduate loans, 9.50% for graduate unsubsidized, and 10.50% for PLUS¹. In high-yield years the caps bind and the formula’s output is trimmed; in the current year they do not.

Origination fees are separate from the rate. Federal loans deduct a fee at disbursement, set by statute and adjusted by sequestration rules, with PLUS fees substantially higher than Direct Loan fees. When comparing against a no-fee private quote, the fee belongs in the comparison; an annual percentage rate comparison captures it, a bare rate comparison does not.

Using the Number

The rate is one of the three inputs that determine what borrowing actually costs; the payment calculator turns rate, balance, and term into the monthly payment and total interest. How much you can borrow at these rates is a separate question, tabulated on federal student loan limits, and what to do when the limits fall short of a program’s price is on when federal loans are not enough.

For official confirmation of the current rates and fees, studentaid.gov publishes both; this page’s figures come from the same statutory formula applied to the public Treasury auction record.

This page is educational and is not financial advice, a loan offer, or a solicitation of credit. CollegeNPC.com is not a lender and does not take loan applications. Rates, fees, and eligibility criteria are set by lenders and change; verify current terms directly with any lender and with studentaid.gov before borrowing. The U.S. Department of Education and the Consumer Financial Protection Bureau both advise using federal student aid before considering private loans. Advertisements for loan products may appear on this page; see our advertising disclosure.