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Is the National Debt Making Your Student Loans More Expensive?

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August 20, 2026

National Debt

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The Summary

Federal student loans help millions of Americans pay for college and career training. In fact, the federal government holds approximately $1.7 trillion in student loans owed by over 42 million borrowers, making student lending one of its largest financial programs.

Students must pay interest to take out a loan, and these interest rates are directly tied to the government’s borrowing costs. This means the national debt can affect how much you pay for a college degree.

Continue reading to learn more about federal student loans and how the national debt can make them more expensive. 

What Are Federal Student Loans?

Federal student loans are issued by the U.S. government to help students and families pay for tuition, fees, housing, books, and other expenses related to higher education. 

As with credit cards, auto loans, and mortgages, students generally have to pay a price to take out a loan. This price is known as interest, and it is calculated as a percentage of the original loan, called an interest rate. 

Most federal student loans have fixed interest rates, meaning a borrower’s rate does not change after the loan is issued. Borrowers usually begin repaying their loans after graduating or dropping below half-time enrollment. As you can imagine, this means the original interest rate you agreed to when taking out the loan has financial implications well beyond your college years. 

How Does the National Debt Impact Student Loans? 

As the government borrows more and the debt continues to grow, concerns about the nation’s fiscal outlook can raise interest rates for the government and the broader economy. We recently got into what this means for home mortgage rates, and student loans follow a similar trajectory. 

The federal government borrows money by selling Treasury bonds to investors. The interest it pays, called the Treasury yield, reflects how much it costs the government to borrow. In part due to the growing national debt, Treasury yields are currently at extreme highs, making borrowing more expensive.

When the government’s borrowing costs rise, yours do too. That’s because loans for everything from college tuition to buying your first home are based on the yield of a 10-year Treasury bond. By law, the interest rates on federal student loans are set by taking that Treasury yield and adding a fixed percentage point based on the loan type:
‍

  • Undergraduate loans: 10-year Treasury yield plus 2.05%
  • Graduate loans: 10-year Treasury yield plus 3.6%
  • PLUS loans: 10-year Treasury yield plus 4.6% (These loans are available to graduate and professional students and to parents of dependent undergraduate students).

As the national debt grows, so do the government’s borrowing costs. Because rates for new federal student loans are directly tied to the government’s borrowing costs, they will continue to rise as the country takes on more debt. 

What This Means for You.

The impact of rising interest rates on student loans is more than just theoretical.

Take the average undergraduate student who took out a loan of $29,300 during the 2024-25 school year. Due to higher interest rates, they would pay $53 more per month than someone who took out the same loan in the 2021-22 school year. That’s $6,430 more over 10 years, and it’s in part due to America’s growing national debt.

For graduate students, the outcome is even worse. The average grad student who took out a loan of $70,300 in 2024-25 would pay $136 more per month than in 2021-22 — a whopping $16,266 over 10 years!

While the standard length — or “term” — of a student loan is 10 years, like in the examples above, it often takes the average student longer to fully pay down their loans. This leaves borrowers with less money to save for retirement, purchase a home, or cover other expenses.

That means the national debt is not just a number in Washington. It can directly affect how much students and families pay to borrow for college, shaping their financial futures long after graduation. 

To learn more about the national debt and how it can impact you, visit our national debt primer or sign up for our newsletter to get our latest policy explainers.

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Continuing Resolution (CR)
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The percentage of the costs of a healthcare service that you pay (e.g., 20%). Coinsurance kicks in after you've paid your deductible.
Coinsurance
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