What the Fed’s likely rate hikes could mean for student loan borrowers – CNBC

December 16, 2021 by No Comments

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The borrowing costs for student loans could get more expensive soon.

With the economy recovering from the pandemic and inflation a growing concern, the Federal Reserve is looking at raising interest rates three times in 2022.

Those increases will impact both federal and private student loan borrowers. Here’s what you need to know.

What does this mean for my federal student loans?

Interest rates on federal student loans reset once a year, on July 1. The percentage is tied to the 10-year Treasury note.

“The new interest rates applies only to new loans,” said higher education expert Mark Kantrowitz.

That’s because federal education loans are priced at a fixed-rate, meaning they don’t change after you’ve borrowed them, regardless of the Federal Reserve’s actions or the state of your finances.

Because most of the Fed’s rate hikes may occur after July, new federal student loan borrowers should see only a small jump on the interest rate next year, Kantrowitz said. He expects 2022’s rate to be between 3.5% and 4.5%.

Expect that every $10,000 or so you borrow in federal student loans will come out to around $100 a month during repayment.

And my private student loans?

Should I refinance?

It depends whether you’re thinking about federal or private student loans.

Those with private student loans who were considering refinancing “should look into pulling the trigger sooner rather than later to try and take advantage of the current rates,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit. 

In addition, those with a variable rate loan may want to switch to a fixed-rate loan, considering that multiple hikes are in store from the central bank, Kantrowitz said.

The Institute of Student Loan Advisors provides a list of lenders and their terms, including their interest rates and repayment options.

Source: https://www.cnbc.com/2021/12/16/what-the-feds-likely-rate-hikes-will-mean-for-student-loan-borrowers-.html


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