Federal Interest Rates and Your Student Loans

It’s amazing how much interest rates affect our lives today—from your mortgage to your car payment to the cup of coffee you buy with your credit card—even the price of your education! The base rate for interest is controlled by the Federal Reserve, which lends money to banks when their cash is low, and banks, in turn, pass that interest onto their customers. In short, that gives the Federal Reserve significant influence over the interest rates that consumers actually see, which allows them to massage the economy when inflation is too high or low. Since the Covid-19 pandemic began in 2020, the Fed has increased rates to try and curb inflation and stymie a recession. Just as the cost of mortgages and credit have increased, so too have the price of student loans, especially those borrowed from private lenders.

Lower Federal Rate = Lower Student Loan Rate?

The Fed has finally started to lower rates, which could signal a major shift for lenders, including in the student loan sector. Credible.com is one of the major marketplaces for private student loans. Over the last couple of weeks, they’ve seen some fixed-rate private loans drop by almost a 1%, whereas variable-rate loans increased significantly. As the names imply, fixed-rate loans have the same interest rate throughout repayment, while variable-rate loans jump around based on the market. Just because they’re higher now doesn’t mean they’ll stay that way, especially since the Fed has signaled that it may continue to drop rates if the economy responds positively. 

If you have questions about private student loans, interest rates, refinancing, and more, give us a call! We’re here to guide you on your repayment journey and find the path that will save you the most time, money, and headache.