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Students preparing to borrow for college during the 2025-2026 academic year should be prepared for another year of high interest rates as Republicans continue targeting young people to generate funds.
While the projected federal student loan rates may decline slightly from last year's peak, they are still expected to remain among the highest in recent memory, nearly matching levels seen in the inflation-heavy 1980s.
According to projections from higher education expert Mark Kantrowitz, undergraduate borrowers can expect a rate of 6.39%. Graduate student loans are projected at 7.94%, while PLUS loans (for graduate students and parents) may reach 8.94%.
These interest rates apply to loans disbursed between July 1, 2025, and June 30, 2026, though these numbers are just below last year's record highs. They remain higher than 2020's 2.75% prior to the full impact of Covid-19.
"Interest rates have not changed by much from last year to this year," Mark Kantrowitz, higher education expert, told Bankrate. "The stability in the interest rates can be attributed to the Federal Reserve Board's decision to pause interest rate cuts due to concerns over inflation and unemployment rates."
What is the impact on borrowers?
This year's rate projections were calculated after the May 10-year Treasury note auction, which yielded around 4.34%. Federal student loan rates are tied to this yield, with a fixed margin added on top.
The results of that auction suggest that the cost of borrowing for college will remain historically high for another year, and the impact on borrowers is that of a substantial burden.
At 6.39%, a first-year dependent student taking out the $5500 maximum loan would pay nearly $1800 in interest over a 10-year repayment period. At 2.75%, the interest would have been under $1000 in 2020 by comparison.
Over the course of four years, or more if graduate school is involved, the extra cost can accumulate rapidly. Borrowing $10,000 would result in monthly payments of about $113 under a 10-year plan.
Other challenges also come from the likes of former president Joe Biden's SAVE (Saving on a Valuable Education) plan being placed under a court injunction as Trump and the Republicans aim to overturn it.
Whilst the red ties in the House also propose a new repayment plan that may require 30 years of payments and increase monthly obligations, a radical approach to secure long-term cash from young people.
The draft also lacks inflation indexing and includes a sharp benefits cliff, where even a small income increase could result in dramatically higher payments. Finally, uncertainty surrounds the future of Public Service Loan Forgiveness.
Rising borrowing costs and narrowing repayment options leave borrowers facing difficult financial decisions heading into the 2025-2026 academic year and they should take all appropriate measures to ensure they make the right decision for their future.