2026 Federal Student Loan Interest Rates: What Borrowers Pay Now

Federal student loan rates saw a slight decline for the 2025-2026 academic year. Think relief? Not exactly.

For loans disbursed between July 1, 2025 and June 30, 2026, undergraduate Direct Subsidized and Unsubsidized loans carry a 6.39% fixed rate — down from 6.53% the prior year. That’s a 0.14 percentage point drop, translating to roughly $8 saved per year on a $10,000 loan. Graduate students face 7.94% on Direct Unsubsidized loans (down from 8.08%), while Direct PLUS loans for parents and grad students hit 8.94% (down from 9.08%).

Here’s the math that matters: borrow $5,000 as an undergrad at 6.39% over 10 years, and you’ll pay $56.49 monthly — totaling $6,779 with $1,779 in interest. At the old 6.53% rate, that same loan cost $6,850 total. The savings? A mere $71 over a decade.

Federal rates are set annually based on the May 10-year Treasury note auction, plus a statutory add-on. The 2025 auction yielded 4.34%, resulting in these rates once Congress’s mandated spreads were applied: +2.05% for undergrad loans, +3.60% for grad unsubsidized, and +4.60% for PLUS loans.

What borrowers miss: these rates only apply to new loans. Your existing federal loans maintain their original fixed rates. That’s why someone who borrowed across multiple years could have a portfolio with rates ranging from 2.75% (2020 loans) to 8.94% (2024 PLUS loans) — creating wildly different monthly payment obligations even with similar balances.

New Repayment Plans Starting July 2026: What Replaces SAVE

Massive overhaul. That’s the only way to describe what’s hitting the repayment of student loan system on July 1, 2026.

The One Big Beautiful Bill Act (OBBBA) collapses seven existing federal repayment plans down to just two for new borrowers: the Standard Repayment Plan and the new Repayment Assistance Plan (RAP). If you’re taking out loans after July 1, 2026, these are your only options. Period.

Standard Repayment Plan 2.0: Fixed monthly payments spread across 10 to 25 years, depending on your total debt. Borrow under $25,000? You get the traditional 10-year timeline. Owe over $100,000? Your repayment stretches to 25 years. The payment stays constant, like a mortgage — predictable, but potentially punishing if your income doesn’t keep pace.

Repayment Assistance Plan (RAP): This is the sole income-driven option for loans disbursed after July 1, 2026. Payments range from 1% to 10% of your adjusted gross income (AGI), with a floor of $10 monthly if you earn under $10,000 annually. After 30 years of payments — yes, 30 years — any remaining balance gets forgiven.

Notice the catch? Previous income-driven plans like SAVE and PAYE offered forgiveness after 20 or 25 years. RAP pushes that timeline to 30 years. For a typical borrower with $37,000 in debt earning $45,000, that’s an extra 5-10 years of payments before qualifying for forgiveness.

For current borrowers, the transition is messy. If you’re on PAYE or Income-Contingent Repayment (ICR), you have until July 1, 2028 to switch to IBR, RAP, or the Standard plan. Miss that deadline? Your servicer will auto-enroll you — likely not in your best interest.

SAVE borrowers got hit hardest. The Education Department settled with Missouri in December 2025, effectively killing the plan. If you were enrolled in SAVE, you’ve been placed in forbearance while the agency transitions you to alternative plans. Check your servicer dashboard frequently; missing the switch window could land you in the Standard plan by default.

Forgiveness of Student Loans in 2026: PSLF, Teacher Programs & New Restrictions

Let’s talk about the forgiveness of student loans — because 2026 brings changes that could make or break your path to debt cancellation.

Public Service Loan Forgiveness (PSLF) remains alive, but tighter. You still need 120 qualifying monthly payments (10 years) while working full-time for a qualifying government or nonprofit employer. What’s new? Starting July 1, 2026, the Education Department can disqualify employers deemed to engage in activities with a “substantial illegal purpose.”

That vague language has attorneys, nonprofits, and public workers worried. Twenty-one states plus DC sued the Education Department in November 2025, arguing the rule could be weaponized against organizations whose missions conflict with administration policy — think immigrant services groups, reproductive health clinics, or civil rights organizations operating legally under state law.

The department claims fewer than 10 employers annually will be affected. But here’s the risk: if your employer gets disqualified after you’ve been making payments, those payments won’t count toward your 120-payment requirement. You’re back to square one unless you switch employers immediately.

PSLF Buyback is the silver lining. New regulations let you “buy back” months spent in forbearance or deferment that didn’t count toward PSLF — but only if you already have 120 months of qualifying employment. One nurse in Boston, with 105 payments completed when SAVE froze, used this option in December 2025 to make a lump sum payment for her remaining 15 months and trigger forgiveness. Check with your servicer if you’re close to the 120-payment threshold.

Teacher Loan Forgiveness stays intact: teach five consecutive years at a Title I school or educational service agency, and you can get up to $17,500 forgiven ($5,000 for most teachers, $17,500 for math, science, or special education teachers). This stacks with PSLF if you consolidate your remaining balance into Direct loans and continue teaching in public service.

Parent PLUS Borrowers: You’re in a tight spot. RAP won’t accept Parent PLUS loans, and the ICR plan — your only income-driven option — sunsets July 1, 2028. If you want PSLF eligibility, you must consolidate your Parent PLUS loans into a Direct Consolidation Loan before July 1, 2026, then enroll in ICR. Make at least one payment on ICR before it ends in 2028, and you’ll be able to switch to IBR to continue toward forgiveness.

Miss that July 2026 deadline? You lose access to income-driven repayment and PSLF entirely. Consolidation takes 30-90 days, sometimes longer — don’t wait until June 2026.

Using the Repayment of Student Loan Calculator: Get Accurate Monthly Estimates

A repayment of student loan calculator is only useful if you’re feeding it the right data. Most borrowers aren’t.

The gold standard? The Federal Student Aid Loan Simulator. It pulls your actual loan data directly from the National Student Loan Data System (NSLDS), eliminating guesswork about balances, interest rates, and loan types. Generic calculators on lender websites? They’re approximations at best, wildly inaccurate at worst.

Here’s how to use the Loan Simulator effectively:

Step 1: Log in with your FSA ID at studentaid.gov/loan-simulator. The system automatically loads your federal loan portfolio — balances, interest rates, servicer, everything. You’ll see Direct loans, FFEL loans, Perkins loans if you have them, broken down by disbursement date.

Step 2: Set your goal. The simulator asks what matters most: lowest monthly payment, fastest payoff, least interest paid, or forgiveness eligibility. Pick one. If you’re chasing PSLF, select “forgiveness” — the tool will show which plans qualify and estimate your remaining balance at forgiveness.

Step 3: Input your income and family size. This is critical for income-driven plans. Use your most recent tax return’s adjusted gross income (AGI). Family size includes you, your spouse, and any children you support. The calculator uses this to determine discretionary income — the basis for RAP, IBR, and other IDR plan payments.

Step 4: Compare up to three plans side-by-side. Standard 10-year, RAP, and IBR — the simulator shows monthly payments, total repaid, interest paid, and forgiveness amounts for each. One client discovered their Standard plan payment was $589/month, RAP dropped it to $214, but they’d pay $22,000 more over 30 years due to extended interest accrual.

What the calculator can’t predict: Future income changes, interest rate adjustments on variable-rate private loans, policy changes (like RAP being modified), or whether you’ll actually stay in public service for 10 years. It assumes your income grows at 5% annually — reality often differs.

For private student loans, use your lender’s calculator or a third-party tool like Bankrate’s. You’ll need to manually input balances, interest rates, and terms. Private loans don’t qualify for federal programs like PSLF or RAP, so your options are simple: standard repayment or refinancing to a lower rate if your credit improved since graduation.

Scenario Testing: Run multiple scenarios. What if you make extra $100 monthly payments? The simulator shows you save $8,342 in interest and shave 4 years off a $50,000 loan at 6.39%. Planning a salary jump after residency or promotion? Plug in your anticipated income to see how RAP recalculates when you certify annually.

One critical mistake: borrowers use the calculator once and forget it. Your situation changes — marriage, children, income shifts, job changes. Revisit the Loan Simulator annually during your IDR plan recertification. That $214 RAP payment could jump to $387 if your income rises 20%, or drop to $122 if you have a second child.

Tax Changes for Forgiveness in 2026: What Borrowers Will Owe the IRS

Here’s the surprise nobody wants: starting January 1, 2026, forgiveness of student loans through income-driven repayment plans counts as taxable income again.

The American Rescue Plan of 2021 temporarily exempted all federal student loan forgiveness from taxation through December 31, 2025. That relief just expired. Now, if you get $40,000 forgiven after 30 years on RAP, the IRS treats that $40,000 as income in the year of forgiveness. At a 22% tax bracket, you’re looking at an $8,800 tax bill.

PSLF remains tax-free. Public Service Loan Forgiveness, Teacher Loan Forgiveness, Total and Permanent Disability Discharge, and closed school discharge all avoid taxation. It’s only income-driven repayment forgiveness — RAP, IBR, PAYE (while it lasts) — that triggers tax liability.

Run the numbers. Say you finish 30 years on RAP with $62,000 forgiven. Your marginal tax rate is 24%. You owe the IRS $14,880. Some states add their own tax on top of federal — California, for instance, would tack on another 9.3% ($5,766), bringing your total tax hit to over $20,000.

Not all states tax forgiven student loans. Currently, states like Florida, Texas, and Washington have no state income tax, so you’d only owe federal. Others like North Carolina and Pennsylvania specifically exempt student loan forgiveness from state taxation. Check your state’s Department of Revenue before the forgiveness year hits.

Planning strategy: If you’re approaching RAP or IBR forgiveness in 2026 or beyond, start setting aside money now. A $60,000 forgiveness event could mean a $20,000 tax bill. Spread that savings over 5 years at $4,000 annually ($333/month) to avoid scrambling when the 1099-C arrives.

The IRS allows payment plans for tax debt, but interest accrues. You could request an Offer in Compromise if you’re genuinely unable to pay, though the acceptance rate hovers around 25%. Better to plan ahead than negotiate debt with the IRS after the fact.

One more wrinkle: the forgiven amount could push you into a higher tax bracket. If your regular income is $78,000 (top of the 12% bracket for single filers in 2026), adding $40,000 in forgiveness bumps $18,000 of it into the 22% bracket. That’s an effective rate of 17.5% on the forgiveness, not the full 22%.

What Borrowers Should Do Now: Your 2026 Action Plan

Theory is fine. Action matters more. Here’s what to do before July 2026 hits.

For Current Borrowers on SAVE: You’re in forbearance while the Education Department transitions you off the now-defunct plan. Don’t just sit there. Log into studentaid.gov, run the Loan Simulator, and compare IBR vs RAP vs Standard. Pick the plan that aligns with your income trajectory and submit the application — don’t let your servicer choose for you.

For PAYE or ICR Enrollees: Mark July 1, 2028 on your calendar. That’s your deadline to switch to IBR, RAP, or Standard. If you’re close to forgiveness (15+ years into a 20-year timeline), staying on PAYE until 2028 might make sense. Run the numbers. IBR’s forgiveness timeline is 20-25 years depending on when you borrowed; RAP is always 30 years.

For Parent PLUS Borrowers: This is urgent. Start consolidation now if you want income-driven repayment or PSLF eligibility. Visit studentaid.gov/app/launchConsolidation.action, consolidate into a Direct Consolidation Loan, then immediately apply for ICR. Make at least one payment on ICR before July 1, 2028, and you can switch to IBR when ICR sunsets. Miss the July 2026 consolidation deadline? You’re stuck in Standard repayment forever.

For PSLF Pursuers: Submit your Employment Certification Form annually — don’t wait until you hit 120 payments. Use the PSLF Help Tool to track qualifying payments and employer eligibility. If you’re close to 120 payments and have forbearance months that don’t count, ask your servicer about PSLF Buyback. It could shave years off your timeline.

For New Borrowers (Loans After July 1, 2026): You have two choices — Standard or RAP. If your expected income post-graduation is high ($80K+), Standard might cost less over time despite higher monthly payments. If you’re entering public service or a moderate-paying field, RAP’s income-based payments could be your lifeline. Model both scenarios in the Loan Simulator before graduation.

Tax Preparation: If you’re on track for forgiveness in the next 5-10 years, start building a tax fund. Estimate your forgiveness amount using the Loan Simulator’s projection, multiply by your expected marginal tax rate (22-32% federal for most), and divide by years remaining. A $50,000 forgiveness at 24% federal + 5% state = $14,500 tax liability. Save $2,900/year ($242/month) over 5 years to cover it.

Servicer Communication: Your loan servicer will send notices about plan transitions and deadlines. Don’t ignore them. MOHELA, Aidvantage, EdFinancial — they’re handling millions of borrowers through this transition. Call them if confused, but verify everything they tell you against official Federal Student Aid guidance. Servicer errors happen frequently during major policy shifts.