Student Loan Borrowers Get Bad News About Their Interest Rates Next Year
Federal student loan borrowers will face higher borrowing costs next year as interest rates are set to increase again for the 2026–27 academic year.
Beginning July 1, interest rates on new federal student loans will tick upward, making it more expensive for students and families to finance higher education.
Why It Matters
Even small interest rate increases compound over time, particularly for borrowers financing tens of thousands of dollars in tuition. With more than 40 million Americans currently holding student debt, these rising rates will elevate monthly payments and increase the total cost of repayment. Furthermore, this shift introduces additional financial pressure at a time when broader structural changes are hitting the student loan landscape.
New Federal Student Loan Rates for 2026–27
For loans issued between July 1, 2026 and June 30, 2027, the rates are set as follows:
- Undergraduate loans: 6.52 percent (up from 6.39 percent)
- Graduate loans: 8.07 percent (up from 7.94 percent)
- Parent PLUS loans: 9.07 percent (up from 8.94 percent)
These rates are fixed for the life of the loan and applied only to new loans, not existing ones.
"As inflation rises, investors demand higher yields to compensate for the loss of purchasing power," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. "That often leads to selling pressure in Treasuries, which pushes rates even higher and increases the cost of borrowing for consumers."
What This Means for Borrowers
While the year-over-year percentage jump appears modest, the cumulative financial impact is significant for borrowers carrying substantial debt loads. Students taking out multiple loans over a multi-year degree program will feel the sharpest impact.
"Higher rates make student loans more expensive, increase monthly payments, and ultimately raise the total cost of obtaining a degree," Thompson said. "Inflation continues to be the canary in the coal mine here, because persistent inflationary pressure keeps upward pressure on rates and borrowing costs overall."
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, emphasized that the long-term math should not be ignored.
"Even incremental increases can result in hundreds or thousands of additional dollars borrowers have to pay over time,” Beene told Newsweek. “For students, it’s important to take these increases seriously and do the math to see what it adds to your total repayment amount. Not factoring in those rate hikes can have negative financial consequences down the line."
Why Rates Are Going Up
Federal student loan interest rates are calculated annually using a statutory formula tied to financial markets. The rates are determined by the high yield of the 10-year Treasury note auction held each May, plus a fixed margin that varies by loan type.
A slight increase in Treasury yields during this year’s auction directly triggered the bump in student loan rates.
"Borrowers should know that rates have been extremely volatile lately, and increased government borrowing has helped push yields higher, which in turn raises borrowing costs across the board," Thompson said. "Expect higher interest costs to remain a theme over the next several months, especially if inflation continues to stay elevated."
Who Will Be Affected
The borrowers impacted include:
- Undergraduate students securing new federal loans after July 1, 2026
- Graduate students borrowing for advanced degrees
- Parents utilizing Parent PLUS loans
Borrowers with existing federal student loans are entirely locked into their current rates and will see no changes to their repayment terms.
More Higher Education Changes
The higher rates come alongside broader changes to the student loan system. The Education Department (ED) has instituted fewer repayment plan options under the Trump administration and also issued new limits on certain loan programs.
The Graduate PLUS loan program has been eliminated for new borrowers starting July 1, 2026, under the One Big Beautiful Bill Act (OBBBA). Aside from 11 designated professional programs (such as medicine and law) which are capped at $50,000 annually, all other graduate and master's students face a borrowing limit of $20,500 per year. Students in high-cost programs like nursing, engineering, or business will have to turn to private lenders to cover funding gaps, stripping them of federal consumer protections and potentially exposing them to even higher, variable interest rates.
"A student taking out $27,000 per year for four years of undergraduate study, the average, at 6.8 percent will repay roughly $152,000 over 10 years. At 6.4 percent, that same borrower pays about $148,000. The $4,000 difference isn’t catastrophic. The problem is that 2026-27 borrowers aren’t just dealing with a rate that’s 45 basis points higher than last year," Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek.
He continued: "They’re entering repayment under the OBBBA framework! Fewer repayment plans, stricter IDR eligibility, a graduate loan cap that limits what they can borrow, and a job market where the certificate vs degree earnings premium is compressing in many fields. The rate increase is the smallest of their problems."
What Happens Next
- The new rates take effect July 1, 2026
- The ED typically finalizes rates in late spring
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This story was originally published May 22, 2026 at 3:21 PM.