Student Loans Could Get More Expensive With Higher Interest Rates – Forbes

Federal Reserve Board Chairman Jerome Powell (Photo by Samuel Corum/Getty Images)
Student loans could get more expensive with higher interest rates.
Here’s what you need to know.
The Federal Reserve raised interest rates yesterday by 0.25%. The Fed also could raise interest rates another six times this year. This could have serious implications for student loan borrowers. Student loan payments are scheduled to restart after May 1, 2022. So, you may be wondering how this will impact your student loans. Here are the key details.
(Biden will cancel $6.2 billion of student loans)
When the Federal Reserve raises interest rates, the cost of borrowing increases. This applies to financial products, including mortgages or credit card debt. The Federal Reserve increases or decreases the federal funds rate, which is the rate that financial institutions charge each other to borrow money overnight. The change in the federal funds rate impacts the interest rate you pay or the funds you earn in your savings account. While your monthly payments could increase, there’s good news if you save money in a bank account. As interest rates rise, you can earn more money on your savings with a higher interest rate. However, what do higher interest rates mean for student loans?
(Student loan forgiveness reduced to $25,000 for student loan borrowers)
There’s good news and bad news for federal student loans. Let’s start with the good news. For current student loans borrowers, the interest rate on your federal student loans will not change. Why? Most federal student loans have fixed interest rates, which means the interest won’t change over the life of your student loans. So, the Fed can raise interest rates six or more times, and your interest rate will remain the same. (Biden Could Pause Student Loans Forever). That said, there are some older federal student loans that may have a variable interest rate. If you have a variable interest rate, your interest rate would change as the Fed raises interest rates. The bad news is that interest rates will increase for student loan borrowers who plan to borrow student loans starting later this year. This includes current or prospective student loan borrowers or parents who will borrow new student loans. The federal government resets the interest rates on new federal student loans annually every July 1.
(Bombshell Report Claims This Student Loan Servicer Misled Student Loan Borrowers)
Private student loans are generally more flexible than federal student loans. How? For example, you can choose either a fixed interest rate or a variable interest rate when borrowing a private student loan. Like federal student loans, a private student loan with a fixed interest rate won’t be impacted by any increase in interest rates. In this case, the interest rate on your private student loans will stay the same for the life of your student loan. In contrast, if you have a variable interest rate private student loan, then your rate will increase as the Fed raises interest rates.
Student loan refinancing is a smart strategy to get a lower interest rate. With student loan refinancing, you can get a lower interest rate, lower monthly payment, or both. Student loan refinancing rates are ridiculously cheap right now and start as low as 1.74% for a variable rate and 1.99% for a fixed rate.
This student loan refinancing calculator shows you how much money you can save when you refinance student loans.
This is particularly helpful if you want to lock-in a low fixed interest rate since the Fed plans to raise interest rate several more times this year. Student loan refinancing rates will rise, so if you plan to refinance, it’s better to do it now rather than later. To qualify for student loan refinancing, you’ll need at least a 650 credit, be currently employed or have a signed job offer, and have enough monthly cash flow to pay living expenses and make current debt payments. If you’re pursuing student loan forgiveness or want to keep your federal benefits like income-driven repayment, then keep your federal student loans outstanding and refinance private student loans only. Alternatively, if you are focused on saving money and getting a lower rate or monthly payment, then you can refinance both private and federal student loans.
Student loan repayments restart after May 1, 2022. Make sure you evaluate all your options, particularly with the potential for multiple interest rate increases that could make your student loans more expensive.
Here are some popular ways to save money:

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