Bond Yields Just Hit Their Highest Since 2002. Here's How That Could Raise Next Year's Student Loan Rates.

The yield on the 10-year U.S. Treasury note climbed to 5.34% on Thursday, its highest level since 2002, before settling around 5.29%, according to The Irish Times. For college students, that number matters more than it sounds.

## Why bond yields matter to students

Interest rates on new federal student loans aren't set by politicians each year. They follow a formula written into law: the rate equals the high yield from the 10-year Treasury auction held in May, plus a fixed add-on.

For undergraduate Direct Loans, the add-on is 2.05 percentage points, and the rate can't go above 8.25%, according to the Education Department.

## This year vs. next year

The current rate for undergraduates, for loans first disbursed between July 1, 2026 and June 30, 2027, is **6.52%**. That was set using a May 2026 auction yield of 4.468%, according to the Education Department.

If the May 2027 auction came in near today's level of about 5.3%, the formula would put next year's undergraduate rate at roughly **7.35%**, close to a full percentage point higher.

That is a projection, not a forecast. Yields move every day, and the rate will be set only by the May 2027 auction.

## Why yields are rising

The sell-off in government bonds has been driven by worries about inflation, high oil prices tied to the Iran war energy shock, large government borrowing and strong U.S. economic data that has raised expectations of higher interest rates, according to The Irish Times. Bond yields have also jumped in the U.K., Japan and Germany.

## What it means for you

- **Loans you already have:** federal student loans have fixed rates. A loan you took out this year stays at 6.52% for its life.
- **Loans you'll take next year:** if yields stay high through May, new federal loans for the 2027–28 school year will cost more.
- **Other borrowing:** higher Treasury yields tend to push up rates on mortgages, car loans and credit cards. The 30-year fixed mortgage rate recently rose to about 7.6%, according to Mortgage News Daily.