How your student loans could be affected by the Fed’s rate hike

Variable student loan rates are expected to rise after the Federal Reserve’s interest rate hikes in March. This could mean higher monthly loan payments for some current borrowers. (iStock)

The Federal Reserve raised its benchmark rate by 0.25% on March 16, and it is expected to raise interest rates several times this year to combat skyrocketing inflation. This could lead to higher rates on a number of financial products, including student loans.

While the Fed’s quarter-point rate hike likely won’t affect federal borrowers with fixed-rate student loans, it could increase the cost of borrowing for those with variable-rate private student loans. .

Keep reading to learn more about how the Fed’s rate hike in March could impact your student loan debt, as well as how to refinance a private loan at a low fixed rate. You can visit Credible to compare student loan refinance rates for free without affecting your credit score.


Borrowers with variable rate student loans will likely pay more

When the Fed raises its federal funds rate, the cost of variable-rate borrowing products — such as credit cards and some types of student loans — will likely rise. On the other hand, fixed rate debt will not be impacted. This means that borrowers who have federal or private student loans with fixed interest rates do not have to worry about changes in their current debt.

However, borrowers with variable rate student loans may feel the effects of Fed monetary policy. If your student debt has a variable interest rate, your rate will change as the Fed raises rates. This can make your debt more expensive to pay off, with higher monthly payments and total interest charges over the life of the loan.

However, the Fed’s rate hikes in 2022 will not only impact existing student borrowers. Students considering borrowing fixed-rate federal student loans for the fall semester will likely see higher rates later this year.

As federal student loans can become more expensive, borrowers may consider taking out a fixed rate private loan with more favorable terms. While federal loan rates depend on when the loan was issued, private student lenders set interest rates based on creditworthiness.

Applicants with good credit and a low debt-to-income (DTI) ratio may see lower rates when borrowing private student loans compared to current federal student loan rates. This means that a fixed-rate private student loan can be cheaper and come with lower monthly payments for qualified applicants.

Keep in mind that private student loans don’t have the same protections as federal loans, such as income-contingent repayment (IDR) plans and some types of student loan forgiveness. But if you don’t plan to use these programs, private loans may offer more favorable terms for financing your education.

You can learn more about private student loans by contacting a knowledgeable loan expert at Credible.


Consider refinancing variable rate loans to a low fixed rate

As interest rates on variable student loans are set to increase, some borrowers may consider switching to a fixed rate loan. This would help lock in your rate for the duration of your loan, so you won’t be affected by future Fed rate hikes. Here’s how to refinance your variable rate loan at a lower interest rate:

  • Check your credit score. Applicants with good or excellent credit will see the lowest possible rates, while those with fair credit may not see favorable terms. If you have bad credit, you might consider refinancing student loans with a co-signer.
  • Compare the rates of several lenders. Since private student loan rates vary from lender to lender, it’s important to compare offers to find the best interest rate for your financial situation. You can visit Credible to get prequalified by multiple private lenders without hurting your credit score.
  • Choose the best offer and apply formally. Once you find a fixed rate student loan that meets your needs, you complete an application with the lender. This will require a rigorous credit check, which will have a temporary and minimal impact on your credit history.

If you’re not sure whether refinancing a fixed rate student loan is the right decision for you, you can use a student loan calculator to see your estimated repayment terms, including your monthly student loan payments. . You can also browse current student loan interest rates in the table below and by visiting Credible.


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