If you’re planning ahead for college this fall (starting in Fall 2025), you’ve probably started thinking about student loans. Whether you’re a parent preparing to help or a student navigating your first year, understanding your loan options is key to avoiding unnecessary debt and costly surprises down the road.
The U.S. Department of Education has just released the new federal student loan interest rates for the upcoming school year—and while they’ve dipped slightly from last year, they still remain relatively high.
Here’s what you can expect for loans disbursed on or after July 1, 2025:
Federal Student Loan Interest Rates (2025–2026)
6.392% – Undergraduate Federal Direct Loans
7.942% – Graduate Federal Direct Loans
8.942% – Federal Direct Grad PLUS Loans
8.942% – Federal Direct Parent PLUS Loans
This marks a 0.141% decrease from the previous year. The Department of Education is expected to update their official website by the end of the month.
Understanding Your Options
1. Federal Direct Loans (Undergraduates)
These include both subsidized and unsubsidized loans, and the 6.392% interest rate applies to both.
Subsidized loans are based on financial need. The government covers the interest while the student is in school, during the grace period, and during deferment.
Unsubsidized loans are available to all students regardless of financial need. Interest begins accruing immediately.
2. Federal Direct Loans (Graduate Students)
These are unsubsidized and carry a 7.942% interest rate. Interest accrues as soon as the loan is disbursed.
Direct PLUS Loans (Grad PLUS & Parent PLUS)
These loans carry the highest rate—8.942%—and come with a 4.228% origination fee.
Parent PLUS Loans are for biological or adoptive parents (and in some cases, stepparents) of dependent undergraduate students.
They require a credit check (not based on income or need).
Repayment starts immediately, although deferment options are available while the student is enrolled.
Note: Parent PLUS Loans are not eligible for income-driven repayment unless consolidated into a Direct Consolidation Loan.
My Recommendations
1. Delay Borrowing If You Can
If you have access to 529 plans, scholarships, cash savings, or payment plans, consider using those for freshman year to delay interest accrual on student loans. Every month you delay borrowing is money saved in the long run.
2. Watch the Loan Acceptance Process
Some schools automatically apply federal student loans unless you opt out. Others require students to log into their college portal and actively check a box to accept the loan—even the standard $5,500 freshman loan. Make sure you understand how your college handles this and take action early.
Be Strategic About Parent PLUS Loans
With a high interest rate and origination fee, these loans should be considered carefully. Before taking one, compare:
- Private student loan options
- State-based loans (like MEFA in Massachusetts) Whether you can qualify for better terms elsewhere
How MEFA Compares to Parent PLUS Loans (For Massachusetts Families)
If you’re a Massachusetts resident, be sure to explore the Massachusetts Educational Financing Authority (MEFA). MEFA offers low-fixed-interest, credit-based private education loans for students and parents—and they often come with more competitive terms than the federal Parent PLUS Loan.
Here’s how MEFA stacks up:
- Lower Interest Rates: MEFA typically offers lower fixed interest rates than the federal Parent PLUS Loan’s 8.942%, depending on credit and loan term.
- No Origination Fees: Parent PLUS Loans have a 4.228% upfront fee. MEFA loans do not.
- Flexible Repayment Options: Choose from immediate, interest-only, or deferred repayment plans.
- Local Support: MEFA is a nonprofit dedicated to helping Massachusetts families make college more affordable, with transparent tools and free guidance.
MEFA doesn’t replace federal aid like subsidized/unsubsidized Direct Loans, but it’s often a smarter alternative to Parent PLUS Loans for families with strong credit.
Learn more: MEFA.org
What If You’re Heading to Grad School?
Good news: If you’re an undergraduate who already has federal loans and you enroll in graduate school at least half-time, your undergrad loans automatically enter deferment—you don’t have to start repaying them right away.
Subsidized loans will not accrue interest during this deferment.
Unsubsidized loans will continue to accrue interest, but payments are paused.
Just make sure your enrollment is reported correctly—some grad schools do this automatically, others may require a form or manual update.
Resources to Help You Navigate
- Federal Student Aid: Loan Types & Info
- Loan Simulator Tool
- Understanding Interest Rates
- MEFA (Massachusetts Educational Financing Authority)
Need Help? Let’s Talk.
Choosing the right mix of loans and timing can save you thousands. Whether you’re not sure which boxes to check, want a second opinion, or would prefer someone to handle the steps for you, I’m here to help.
Let’s schedule a time to walk through your options.
Because college should build your future—not bury you in debt.
Bonus Resource:
If you or someone you know is stepping into the post-college world, don’t miss my free resource: A Financial Guide for New Grads. It’s packed with actionable tips to help recent graduates start strong with budgeting, saving, investing, and navigating early career decisions.