The Federal Reserve Increased Interest Rates: What This Means for Your Student Loans1/7/2016 by Trinya Murray in Private Student Loans, Student Finances, Student Loan Consolidation, Student Loan Repayment, Student Loans Comments Off on The Federal Reserve Increased Interest Rates: What This Means for Your Student Loans
You may have heard that the Federal Reserve raised their interest rates a few weeks ago. So, what does that mean for your student loans?
After a long and trying debate, it was finally voted into effect: the Federal Reserve decided to raise interest rates. It’s been nearly a decade since the last time interest rates were raised, so students who have taken out student loans should pay attention.
The Good News
The increase in interest rates may actually be a good sign, if you look at the larger picture. Back in 2008, when the economy crashed, the Federal Reserve lowered interest rates drastically (they went as far as implementing a 0% interest rate) in order to stabilize the economy. So, raised rates means that the United States’ economy is doing much better, and the Reserve believes that the country is ready to re-assume higher costs which can help offset inflation.
The bad news is that it will have an impact on student loan interest rates which may be costly for some.
How Will It Affect Student Loans?
How this affects your loans depends on the type of loan you have. If you have federal student loans, you have a fixed interest rate, which means you’re in luck. Fixed interest rates aren’t affected by market changes. So you have nothing to worry about, because nothing is going to change.
If you have private student loans, however, you may have a variable rate, which means it will change when the market does and may increase with this new Reserve Raise. Which means you may end up paying more interest on your existing debts. If you have a private student loan, make sure to double check your rates and see whether or not they’ve changed.
What Should I Do?
An increase in interest rate might also mean an increase in your monthly payment amount, so you may need to come up with some extra cash to put towards paying off your debt. This is where you have to get careful with your planning!
- Budget. Make sure you have a set amount every month set aside specifically for paying off your debt, and adjust accordingly for the interest changes.
- If you have a private student loan, talk to your loan provider about the variable rates. Find out the maximum amount your loan can fluctuate and have a plan in place in case it changes again.
- See what your options are for refinancing or consolidating if you can get a lower, fixed interest rate. It will save you more in the long run and help keep your monthly payments low. Check out refinancing and consolidation options with our student loan refinance directory!
Get all your ducks in a row and stay on top of those loans — whatever the interest rate, and here’s hoping that this means good things for the economy!
About the author
Trinya’s passion for helping others understand student loans started when she began learning all she could to fill in what she didn’t know about her own loans. She enjoys speaking at local schools about the cost of college and assisting friends with their finances. In her free time, Trinya also enjoys reading, writing, and playing music.