Federal student loan interest rates and private student loan interest rates are closely related. When federal student loan rates drop, private student loan rates are likely to follow. This is because both types of loans tend to follow larger economic market trends.

Each spring, Congress sets federal student loan interest rates based on the high yield of the last 10-year Treasury note auction in May. New rates apply to student loans disbursed from July 1 to June 30 of the following year. Federal loans are fixed, meaning that the rate will not fluctuate for the life of the loan. The interest rate you receive on a federal student loan is not determined by your credit score or financial history.

Interest charges differ between subsidized and unsubsidized loans. For federal subsidized loans, the government pays your interest charges for you while you’re in school at least half time, during your grace period and while you’re in deferment. The amount you’ll owe once you start paying includes only your original principal balance, loan fees and interest accrued moving forward.

With federal unsubsidized loans, interest charges start accruing immediately after funds are disbursed. If you choose to hold off on making loan payments until after graduation or your six-month grace period, the accumulated student loan interest gets added to your principal balance when the loan enters repayment.

With that said, interest rates on federal student loans are temporarily set to zero until June 30, 2023 or the current litigation over the federal student loans forgiveness program is resolved.

Private student loans are offered by banks, credit unions and online lenders. Interest rates vary from lender to lender. Many private student loan lenders provide both fixed and variable rates. If you choose the variable rate option, your interest rate will fluctuate according to market conditions.

Most student loan lenders set rate ranges based on the Libor or the Secured Overnight Financing Rate indices. 

However, while rates are tied to this benchmark, private lenders also typically evaluate you or your co-signer's credit score, income and financial history to determine your interest rate. Generally, the better your financial health and credit score, the lower your interest rates will be. 

In order to access this information, many lenders will run a soft credit pull as part of the prequalification process. This type of credit inquiry doesn’t affect your credit and will allow you to see your potential terms and interest rates. However, if you decide to proceed with the application process, the lender will have to do a hard credit inquiry, which can knock your credit score down a few points, to approve you for the loan.

To make loans more accessible, some lenders also factor in your work and academic history, potential future earnings and more.