Fed Hikes Interest Rates: What It Means for Your Student Loans

It was bound to happen sooner or later, and for some with outstanding student loan debt, it feels a lot like sooner. Whether or not you have private student loans or federal loans made before July 1 2006 under the Direct Loan program is the key factor here. The loans made since 2006 as federally backed student loans are fixed rate loans – a term you may be more familiar with when it refers to mortgages – the breakdown is different for those who have post-2006 federal student loans and private student loans.

What a Rate Hike Is

The federal funds rate is the rate at which the Federal Reserve lends money to banks. During the recession, this rate was cut down to zero in order to stimulate lending, that a quarter of a point hike from zero is such a significant development lets you know just how bad the recession really was. Essentially, the this rate determines the level of all interest rates in the economic sphere from the credit card in your wallet to the mortgage rate on the building you live in, and the loan on the vehicle that takes you to work. If you have your student loans through the federal government, your loans are fixed rate loans – unless you consolidate them privately with an adjustable rate consolidation loan. So, most of you holding federal student loans taken out from 2006 forward who have not consolidated them with a private lender can relax.

The Rest of You

This could be a problem. If you have those pre-2006 Direct Loan or private loans, if you have a variable rate, you could see your rate go up. Likewise, if you refinanced or consolidated your fixed-rate federal loans into a variable rate loan from a private lender, you could see an increase. Getting federal student loans for 2016 and beyond may mean a higher rate for those starting college or already matriculating.  Additionally, the Federal Reserve may raise rates one or two more times in 2016. You’re not going to feel this overnight, but sooner or later you will feel it.

What to Do?

For those of you starting college or already there, federal loans are the best hedge against a jump in interest rates. For those who have already graduated and who are struggling, it may be time to consider a consolidation with a fixed interest rate. If student loans are just one of the financial problems that you’re having, it might be time to gather up all your paperwork and come see us. Debt can be an overwhelming experience that spreads from one area of your life to the others. We handle student loan issues of all kinds, debt relief, and even personal bankruptcy. We’ve helped a lot of people right their financial ship, and we can help you. If you want to get back in control, contact us for a free consultation and let’s see what we can do.