Inflation is here and interest rates are going up for new Federal Direct Student Loans beginning on July 1, 2021.

Interest rates for Direct Loans are based on a formula whereby the rates are indexed to the 10-Year Treasury Note plus an “add-on” percentage. This year’s auction of the 10-year Treasury note resulted in a “high yield” of 1.684%, a huge decrease over last year’s high yield of 0.700% and a sign that inflation is on the rise. As a result, borrowers with new loans for the 2021-2022 award year will be paying much more in finance charges over the life of their loan. While interest rates are rising, it is important to remember that even these rates are still near historic lows and in general it is still a good time to borrow to take advantage of these low rates. You can read all about it here in a recent electronic announcement from FSA. Do not forget to update your borrower communications and consumer information!

Interest Rates for Direct Loans First Disbursed Between July 1, 2021, and June 30, 2022.

Undergraduate Students

Direct Subsidized Loan                   3.73%

Direct Unsubsidized Loans           3.73%

Direct PLUS Loans                            6.28%

Graduate & Professional Students

Direct Unsubsidized Loans           5.28%

Direct PLUS Loans                            6.28%

The maximum interest rates are 8.25% for Direct Subsidized Loans and Direct Unsubsidized Loans made to undergraduate students, 9.50% for Direct Unsubsidized Loans made to graduate and professional students, and 10.50% for Direct PLUS Loans made to parents of dependent undergraduate students or to graduate or professional students.