Federal Direct Unsubsidized Loans carry a fixed interest rate on unsubsidized student loans of 6.39% for undergraduates and 7.94% for graduate and professional students, for loans first disbursed between July 1, 2025, and June 30, 2026.1Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026 The rate locks in when the loan is disbursed and stays with that loan for its full life, no matter what market rates do afterward. Because interest starts accruing the day the money leaves the Department of Education, the rate you get is only part of what determines your total cost.
The Current Rates
For any Direct Unsubsidized Loan disbursed during the 2025–2026 academic year:
- Undergraduate borrowers: 6.39%
- Graduate and professional borrowers: 7.94%
If you have older loans, those keep their original rate. Loans disbursed between July 1, 2024, and June 30, 2025, carry 6.53% for undergraduates and 8.08% for graduate borrowers.2Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2024 and June 30, 2025 Rates for loans disbursed on or after July 1, 2026, will be announced in late May or early June 2026.
How the Rate Is Set
Congress does not vote on the number each year. Under 20 U.S.C. § 1087e, the Department of Education takes the high yield from the final 10-year Treasury note auction held before June 1 and adds a fixed statutory margin that depends on the loan type:3Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans
- Undergraduate unsubsidized: Treasury yield + 2.05 percentage points
- Graduate unsubsidized: Treasury yield + 3.60 percentage points
- Direct PLUS: Treasury yield + 4.60 percentage points
The May 2025 auction yielded 4.342%. Add 2.05 to get 6.39% for undergraduates; add 3.60 to get 7.94% for graduate borrowers.1Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026
Statutory caps exist for years when Treasury yields run high. Undergraduate unsubsidized loans cannot exceed 8.25%, and graduate unsubsidized loans cannot exceed 9.50%.3Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans Current rates sit well below both ceilings.
When Interest Starts and How It Adds Up
Unsubsidized loans charge interest from the day of disbursement. That includes the time you spend enrolled in school, your six-month grace period after leaving, and any deferment or forbearance.4eCFR. 34 CFR Part 685 – William D. Ford Federal Direct Loan Program Every day the loan exists, you owe more.
Interest accrues daily using simple interest: multiply the outstanding principal by the interest rate, then divide by 365.25.5Federal Student Aid. Interest Rates and Fees for Federal Student Loans On a $10,000 undergraduate loan at 6.39%, that works out to about $1.75 per day. Left alone through a four-year degree, roughly $2,555 in interest builds up before repayment even starts.
You can pay that interest as it accrues to keep the balance flat. Even $50 to $100 a month on a typical loan can prevent thousands of dollars in added cost over the loan’s life.
What Happens to Unpaid Interest
Interest you do not pay does not vanish. In certain situations it capitalizes, meaning it gets rolled into your principal balance. From that point on, interest is calculated on the new, higher principal.
If you carry $20,000 in principal plus $2,000 in unpaid interest and the interest capitalizes, your balance becomes $22,000 and your daily interest charge rises accordingly. The loan starts costing more, faster.
When Capitalization Still Happens
Federal regulations updated in 2022 narrowed the situations that trigger capitalization on Direct Loans.6FSA Partners Knowledge Center. Final Regulations – Borrower Defense to Repayment, Interest Capitalization, and Other Topics Under the current rules, unpaid interest capitalizes when you exit a deferment period and when you leave the Income-Based Repayment plan. Both events are written into the statute, so the Department cannot waive them.
Capitalization no longer occurs when you enter repayment for the first time at the end of your grace period, when you exit forbearance, or when you leave income-driven repayment plans other than IBR, such as PAYE or ICR. In those cases the unpaid interest stays on the loan but remains separate from principal, so it does not compound.7UNITED STATES DEPARTMENT OF EDUCATION. Issue Paper 3 – Interest Capitalization
Income-Driven Repayment
If your monthly payment on an income-driven plan is smaller than the monthly interest charge, the shortfall accumulates. Under IBR, PAYE, and ICR, the government does not subsidize interest on unsubsidized loans, so any gap grows the balance.8Federal Student Aid. Questions and Answers About IDR Plans Watch the balance closely in the early years of repayment, when incomes are usually lowest and the gap tends to be widest.
The Origination Fee Shrinks Your Disbursement
Separate from interest, the Department of Education charges an origination fee that is subtracted proportionally from each disbursement before the money reaches your school. For Direct Unsubsidized Loans disbursed between October 1, 2025, and October 1, 2026, the fee is 1.057%.9Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs
If you borrow $5,000, roughly $53 is withheld and you receive about $4,947. Your interest, though, is charged on the full $5,000 you owe.
The Student Loan Interest Tax Deduction
Interest you actually pay on a federal student loan, including an unsubsidized loan, may be deductible on your federal income tax return, up to $2,500 per year.10Office of the Law Revision Counsel. 26 USC 221 – Interest on Education Loans It is an above-the-line deduction, so you can claim it without itemizing, and you do not have to have finished your degree.
For the 2026 tax year, the deduction phases out for single filers with modified adjusted gross income between $85,000 and $100,000, and for joint filers between $175,000 and $205,000. Above the top of each range, the deduction is gone. Depending on your bracket, claiming the full $2,500 typically cuts a tax bill by roughly $550 to $800.
How This Differs From a Subsidized Loan
Undergraduate subsidized and unsubsidized loans carry the same 6.39% rate for 2025–2026. The difference is who pays the interest while you are in school. On a subsidized loan, the federal government covers interest during enrollment, the six-month grace period, and qualifying deferments. On an unsubsidized loan, that interest is yours from day one.4eCFR. 34 CFR Part 685 – William D. Ford Federal Direct Loan Program
Subsidized loans are only for undergraduates with demonstrated financial need, and the annual amount is limited. Graduate borrowers cannot get subsidized loans at all, which is why the 7.94% unsubsidized rate is the graduate borrower’s baseline federal rate. If your aid package mixes the two, put extra payments toward the unsubsidized balance first, since every day of interest on that portion is on you.