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How will the Interest Rate Hike Affect My Student Loans?

If the headline-making news about interest rate hikes has you worried about your student loans, don’t panic yet. Here’s what you need to know about the recent rise in interest rates.

Federal interest rates haven’t been raised since 2006 and the Federal Reserve considers the measure a vote of confidence in the U.S. economy. That means they anticipate a better overall economic picture into the future. A good economy means there are more jobs, less unemployment and more opportunities for you and your future!

It was a tiny hike. The Federal Reserve raised the short-term interest rate by only one quarter of one percent. On $1,000, that rate would translate to only $2.50. Hardly an amount that will break your piggy bank. If you had a rate of 6 percent on that $1,000 and it increased to 6.25 percent, your monthly payment would go from $86.07 to $86.18.

Federal student loans have a fixed rate. If you have a federal student loan, which represents most of the loans granted for higher education, and you took it out after July of 2006, you have a fixed rate. That means no matter how high rates go, you’re safe. Your interest rate cannot be raised.

Even variable rates won’t increase by much. If you have private loans, with variable rates, then you may see a slight increase in your monthly payments. That is the risk of a variable rate loan, but the Chair of the Federal Reserve, Janet Yellen, has said that she expects that hikes in interest rates will be gradual, over time. You can either hang in there and accept the slightly higher payment, or start research now on how to convert your variable note to a fixed rate loan.

Rates are not going to skyrocket.  Economists and experts agree that there will be no dramatic increase in interest rates. And that interest rates on your student loans are likely to remain low for years to come.

Do you have student loans or are you just starting to think about continuing your education? At Charter College, we can help you navigate your financial aid options on your way to programs in aviation, business, healthcare, hospitality, information technology, paralegal studies, veterinary assistant or the trades. Which one is right for you? Start your future here.