Federal Direct Loan Interest Rates and How They Are Set
By Muntasir • Published Aug 03, 2026 • Updated Sep 20, 2026 • US Financial Aid & Scholarships, US Student Loans
Federal Direct Loan interest rates are fixed for the life of the loan, reset every July 1, and come from the 10-year Treasury note yield plus a set add-on percentage.
💵 For loans first disbursed July 1, 2026 through June 30, 2027: undergraduate Direct Loans are 6.52%, graduate unsubsidized loans are 8.07%, and Parent PLUS loans are 9.07%.
Congress set the formula: the 10-year Treasury note high yield from the last auction before June 1, plus a fixed add-on that varies by loan type.
Your rate locks in for the entire life of that loan once it is disbursed. It never changes later.
New Grad PLUS loans are no longer available to new borrowers starting July 1, 2026.
Rates reset each July 1 from that spring's Treasury auction, so loans taken in different years carry different rates.
Why the reset date matters
If you are comparing loan offers or planning next year's borrowing, the date your loan first disburses controls which year's rate applies to you, not when you filed your FAFSA or when your school packaged your award. A loan disbursed in August 2026 falls under the 2026-27 rate table. A loan disbursed the following August falls under whatever rate the 2027-28 Treasury auction sets.
The formula behind your rate
Congress does not set Direct Loan interest rates as flat numbers written into law forever. Instead, the rate for each 12-month period from July 1 to June 30 comes from a formula: the high yield of the 10-year Treasury note from the last auction held before June 1 of that year, plus a fixed add-on percentage that depends on the loan type, according to Federal Student Aid .
The add-on percentage stays fixed by statute year to year: 2.05 percentage points for undergraduate Direct Subsidized and Unsubsidized Loans, 3.60 percentage points for graduate Direct Unsubsidized Loans, and 4.60 percentage points for PLUS loans. The part that moves each year is the Treasury yield, which reflects market conditions at the time of the spring auction.
Rates for loans disbursed now
The Treasury auction held before June 1, 2026 produced a high yield of 4.468%, according to Federal Student Aid. Adding the statutory add-on percentages gives the rates for loans first disbursed between July 1, 2026 and June 30, 2027.
| Loan type | 2026-27 rate |
|---|---|
| Direct Subsidized and Unsubsidized (undergraduate) | 6.52% |
| Direct Unsubsidized (graduate) | 8.07% |
| Direct PLUS (Parent PLUS) | 9.07% |
These rates run slightly higher than the prior award year. For loans first disbursed between July 1, 2025 and June 30, 2026, the undergraduate rate stood at 6.39%, the graduate unsubsidized rate at 7.94%, and the PLUS rate at 8.94%, according to the Federal Student Aid announcement for that year.
Statutory rate caps
Even when Treasury yields spike, the law caps how high these rates go. Undergraduate Direct Loan rates do not exceed 8.25%, graduate unsubsidized rates do not exceed 9.5%, and PLUS loan rates do not exceed 10.5%, regardless of Treasury market movement. Current 2026-27 rates sit well under all three caps.
Subsidized versus unsubsidized: the rate is the same, the timing is not
Direct Subsidized and Direct Unsubsidized Loans for undergraduates share the same interest rate in a given award year. The difference is who pays interest while you are in school. On a subsidized loan, the government pays the interest for you while you are enrolled at least half time and during your grace period. On an unsubsidized loan, interest builds from the day the loan disburses, whether or not you are in school, and unpaid interest gets added to your loan balance when you enter repayment.
Why your rate never changes once you borrow
Direct Loans carry a fixed rate. Whatever rate applies on the date your loan first disburses stays with that loan for its entire life, through repayment and any deferment. Take out a loan in fall 2026 and another in fall 2027, and each loan carries its own fixed rate based on the year it disbursed, even on the same account with the same servicer.
This differs from variable-rate private loans, where the rate moves up or down during repayment based on market indexes. Once your federal loan disburses, market changes after that date have no effect on the rate you already locked in.
A change to watch: Grad PLUS is ending
Starting July 1, 2026, new borrowers no longer take out Grad PLUS loans. This change came from the 2025 federal reconciliation law and affects how graduate and professional students fill funding gaps beyond their Direct Unsubsidized Loan limits. Students who borrowed a Grad PLUS or other Direct Loan before that date keep some ability to continue borrowing within the same program at the same school. Parent PLUS loans continue, with new annual and lifetime borrowing caps under the same law.
Check studentaid.gov for your specific loan type and disbursement date before you plan next year's borrowing, since graduate borrowing rules changed for 2026-27.