5 Things to Know About Student Loan Interest Rates in 2023

Interest rates are important. Consider mortgages: If you're buying a $400,000 home with a fixed-rate mortgage and putting 20%, or $80,000 down, you'll pay around $1,850 per month if your interest rate is 4%, and around $2,675 monthly if your rate is 8%. Interest rates also dictate how much you can receive from bonds, savings accounts, and other things, and they matter a lot when it comes to student loans as well.

Here are some things to know about student loan interest rates.

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1. The current interest rates for federal student loans

More than 43 million people in America are carrying student loans totaling nearly $1.8 trillion, and more than 90% of that debt is from federal student loans. If you're planning or thinking about taking out a federal student loan, you'll want to know what the latest interest rates are. Here there are, for loans that launch on or after July 1, 2023 -- up to June 30, 2024:

Data source: StudentAid.gov. 

A subsidized loan is one where the government makes your interest payments while you're in college and for six months after you graduate (and possibly longer, if you get a deferment). With unsubsidized and PLUS loans, you're on the hook for interest payments, even when you're in school. Can't pay that? No problem -- the interest due is added to your balance due, which is convenient but makes your debt grow.

Note that these rates are fixed, not variable, meaning that they'll remain the same throughout the life of the loan.

As you might have suspected, these rates are up considerably in recent years, as overall interest rates have risen. The interest rate for all federal undergraduate student loans was 4.99% a year ago, and just 2.75% three years ago. Of course, rates haven't always been low -- between 2006 and 2008, rates approached 7%.

2. The recent interest rates for private student loans

Private loan interest rates vary widely, depending on the lender and the borrower. One recent estimate is that private loan interest rates range between around 4% to 15%.

3. How to get competitive interest rates for private loans

If you're in the market for a private loan, you'll likely be offered better interest rates if you have a solid credit score. Of course, solid credit scores are achieved by using credit and paying back debts on time -- that's difficult for many students who have yet to hold jobs and responsibly use credit cards. Thus, many students borrow with a cosigner, such as a parent -- ideally, one with a solid credit score.

It's also smart to shop around, checking with various banks, credit unions, and other financial services companies to see what they'd offer you. You may be able to snag an extra discount if you're borrowing from your current bank or if you sign up for automatic payments.

You'll also get a lower interest rate if you opt for a shorter-term loan, which is generally a smart move, as long as you'll be able to pay it off on time. A five-year loan, for example, will cost you less overall, but you'll likely have to make heftier monthly repayments.

4. There are student-loan interest tax deductions

Many, if not most, student loan borrowers can take advantage of a student-loan interest deduction, worth up to $2,500. Unlike many other deductions, you don't have to itemize your deductions to be able to use it, so it will be available to many more borrowers.

5. How to refinance student loans -- or consolidate them

If you're a student loan borrower, at one or more points throughout the life of your loan(s), it might make sense to refinance or consolidate them.

Refinancing one or more student loans, like refinancing a mortgage, involves a lender paying off your existing loan(s) completely, replacing that debt with a new loan, which will often have new terms and a new interest rate. It's particularly good to refinance when interest rates fall well below your existing rates. You can generally refinance federal and/or private loans.

Consolidating federal student loans involves having multiple loans compiled into a single new loan, which can make it simpler and easier to keep track of and make payments on. You don't get new terms, though, and your new interest rate is simply a weighted average of your existing loans' rates.

A last thing to know about student loans is that President Biden has proposed a major loan forgiveness program, and the Supreme Court is set to rule on it on June 29. If you're a borrower, look up the latest news on this.