Will student loan interest rates go down in 2025-2026? What borrowers need to know

By Corey Buhay | Published on October 21, 2025

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Interest rates are one of the biggest factors influencing how much your student loans will cost you over the long run. Let’s say you need to borrow $35,000 for school. (That, by the way, is the national average for undergrads right now.) Get stuck with a high rate, and you could end up paying thousands of dollars more over a 15-year loan term than you would with a rate even just a point or two lower*. Get a low rate, on the other hand, and you could end up with a smaller monthly payment, a shorter loan term, and/or a more affordable loan. But how can you tell if rates are high or low right now? And will student loan interest rates go down in 2025? Here’s what borrowers need to know.

*Example listed above is for illustrative purposes only. Savings are not guaranteed and may vary.

How do student loan interest rates work?

Student loan interest rates go up or down according to economic trends. Take federal student loan interest rates, for example. Federal rates are standardized at the start of each school year—and are therefore the same for all borrowers within a given loan type—but that standardized rate is based on the national interest rate market. So, if rates across the nation are trending high, the federal student loan interest rate will likely be high. If rates are trending low, the federal rate will likely be low, too.

The same is true of private student loans¹, though those tend to have a little bit more variability because private lenders are allowed to set their own rates. Private lenders can also charge you a different rate based on your credit score, annual salary, and other personal finance markers. However, most private lenders set their variable rates according to the Secured Overnight Financing Rate (SOFR). This is a national benchmark rate. It mirrors the rates the U.S. Federal Reserve sets for the nation. If the Fed increases its rates, the SOFR rate will go up, and so will the rates private lenders charge.

A rate increase affects borrowers in a few different ways:

• If you’re taking out new loans, they’ll be more expensive. If national interest rates are trending high, lenders across the board will charge relatively high rates, too. That can make it tough to find an affordable loan, even if you’re shopping around among a bunch of different lenders.
• If you’re looking to refinance, you might struggle to find a lower rate. If interest rates are higher now than when you first took out your loans, it might be tough to find a lower rate than what you have already—even if your credit score and salary have improved. That makes a high-rate climate a tough time to refinance.
• If you have variable rates, your bill can go up. Some private student loan borrowers have variable interest rates, which can change annually, quarterly, or monthly based on market trends. So if there’s a Federal Reserve rate hike, your variable rate could go up. In turn, your monthly bill could go up, too. (If you have fixed interest rates, rate changes won’t affect your current loans.)

Can student loan interest rates go down?

Yes. The Federal Reserve can increase interest rates, but it can also drop rates. In 2024 alone, the Fed introduced three different rate cuts, reducing its benchmark rate (the Federal Funds Rate) by a full point over a four-month period. As a result, many private lenders began offering lower interest rates, as well. New borrowers were able to find less expensive loans, and existing private loan borrowers with variable rates saw their monthly bills decrease.

Federal student loan interest rates can also decrease, but only from academic year to academic year rather than on a monthly or quarterly basis. Federal rates are set each May for the upcoming school year. If a rate change happens after that point, federal student loan interest rates won’t be affected.

What we know about upcoming rate trends

In mid-2024, the Federal Reserve signaled that it was going to drop interest rates. It followed up that promise with three consecutive rate drops in September, November, and December of that year. Since then, rates have held steady. A January 2025 Federal Reserve meeting concluded without any additional rate cuts, and financial analysts currently predict that the Fed will stay the course through March, as well.

However, there could be more rate drops coming. Right now, the CME FedWatch Tool—a barometer of financial analysts’ average sentiment—predicts two small decreases by the end of 2025. We don’t know when these might happen, but many analysts think they’ll be around 0.25% each.

Will student loan interest rates go down in 2025?

We can’t know for sure whether student loan interest rates will go up or down for the 2025-2026 school year. But if current trends hold, we could see a slight rate drop across both loan types.

Private interest rates

Many private lenders already dropped their interest rates in the wake of the 2024 Federal Funds Rate cuts. It’s possible that some lenders may still be playing catchup, and might drop their rates a touch further in early 2025, but that’s not necessarily guaranteed. It’s more likely that private loan borrowers won’t see their rates change until later in 2025, assuming the Federal Reserve goes through with the currently predicted cuts.

So if you have existing loans with variable rates, you might see your loan payments go down slightly by late 2025. If you’re thinking of taking out new private student loans this year, you might want to wait until June or July before you make your decision, just in case rates drop by then. (Just be sure not to wait too late to borrow.

Federal interest rates

Last year, federal student loan interest rates went up more than a percentage point, rising from 5.50% to 6.53% for undergraduate loans. (Parent PLUS Loans and Direct Loans for graduate students got even more expensive—their rates topped 8% and 9% respectively.) This year, many borrowers are hoping federal rates will come back down a bit, but we won’t know for sure until May.

If federal student loan interest rates do drop this May, it will likely be by a relatively small amount. Student loan rate changes don’t directly correlate to Federal Funds Rate changes. For example, the Federal Reserve only hiked rates once—and only by a quarter point—between mid-May 2023 and mid-May 2024. And yet Congress hiked its rates by a whole percentage point last May. So, just because the Federal Funds Rate dropped by a point last fall, that doesn’t mean student loan rates will drop by a point, too.

The other bad news for federal borrowers: any future 2025 rate cuts aren’t likely to come soon enough to influence federal student loans. Right now, the CME FedWatch tool predicts cuts in June, July, or later. By then, federal student loan rates will already have been announced.

How will I know if rates drop?

If you regularly read financial news sites—like Forbes, Business Insider, or the Earnest Blog, you’ll likely see news about Federal Reserve rate changes pretty soon after they happen. However, you can stay even more on top of things by checking the news right after every Federal Reserve meeting. These meetings are called “Federal Open Market Committee meetings” and the dates of these are posted online here. If the Fed decides to drop interest rates, it’ll hit the news cycle shortly after the meeting ends.

If you’re a new federal borrower and you’re most concerned about federal student loan rates, you’ll want to check the Federal Student Aid website in May. Congress sets the following year’s rates after the 10-Year Treasury Note Auction, which is set to be settled by May 15 of this year. So, on or just after May 15, you’ll have your answer.

Other ways to reduce your student loan bill

If you don’t have a variable interest rate and aren’t looking to take out new loans, there are a few other tools you can use to lower your monthly student loan bill:

• Student loan consolidation: You can choose a new loan term (and therefore a new monthly payment) by consolidating your student loans through the US Department of Education. This option is only available for federal loans, and you’ll end up with a fixed interest rate. You cannot lower your interest rate this way—only your monthly payment.
• Income-driven repayment plans: Income-driven repayment plans² may set your loan payment to a percentage of your income, which ensures it remains affordable. You could also be eligible for loan forgiveness after 20 to 25 years if you make a certain number of qualifying payments under an IDR plan in that time.
• Student loan forgiveness: If you get your loans forgiven or canceled, that could dramatically reduce the overall amount you owe. However, loan forgiveness is only available to federal student loan borrowers and only under special circumstances.
• Student loan refinancing: When you refinance³, you exchange your existing student debt for a new loan with a new lender. Pros: Refinancing is available for both private and federal loans, and it can help you secure a lower interest rate. Cons: If you refinance federal loans, you’ll lose access to government protections like deferment, forbearance, and loan cancellation.

Is 2025 a good time to refinance?

With rates down and projected to drop even further, 2025 could be an ideal year to refinance. That’s especially true if you got stuck with higher interest rates on your loans. Refinancing could also benefit you if your financial situation has improved over the last few years. If you have a good credit score or a higher salary now, for example, refinancing could help you qualify for a lower interest rate and better repayment terms⁴.

Even if you don’t have an incredible credit profile, refinancing still might be worth looking into. After all, many lenders (including Earnest) consider more than just your score when determining your eligibility. You might also be able to refinance with a cosigner, a system that lets you leverage a trusted adult’s higher credit score to unlock a new interest rate.

If you qualify for a lower interest rate, you could lower your monthly payment, save money over the life of the loan, or even get out of debt faster. Ready to see how much you could save? Check your rate with Earnest today.

This blog post provides potential fed rate forecasting and does not reflect the views or opinions of Earnest.

About the Author

Corey Buhay

Corey Buhay is a writer and editor based in Boulder, Colorado. She’s passionate about literature, the outdoors, and doing her taxes by hand. She has been writing about student loans and personal finance for Earnest since 2019. You’ll find her work in Outside Magazine, Backpacker Magazine, Smithsonian, and The Denver Post.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.