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Borrowing costs for student loans could soon be more expensive.
With the economy recovering from the pandemic and inflation a growing concern, the Federal Reserve is considering three rate hikes by 2022.
Those increases will impact both federal and private student borrowers. Here’s what you need to know.
Interest rates on federal student loans reset once a year, on July 1. The percentage is tied to 10-year Treasury bond.
Higher education expert Mark Kantrowitz said: “The new interest rates apply only to new loans.
That’s because federal education loans are priced at a fixed rate, meaning they don’t change once you’ve borrowed them, regardless of the Federal Reserve’s actions or the state of your finances. friend.
Because most Fed rate hikes are likely to happen after July, newbies in federal student loan borrowers will only see a jump in interest rates next year, Kantrowitz said. He expects 2022’s rate to be between 3.5% and 4.5%.
Expect that for every $10,000 or so you borrow in federal student loans to add up to about $100 a month over the repayment period.
It depends on whether you are thinking about federal or private student loans.
Betsy Mayotte, president of Student loan consulting institute, a non-profit organization.
Additionally, people with variable-rate loans may want to switch to a fixed-rate loan, as the central bank is having multiple rate hikes, Kantrowitz said.
Offered by Student Loan Advisors list of lenders and their terms, including interest rates and repayment options.
For federal student loans, experts recommend being extra cautious about refinancing.
Converting a government loan into a private loan will mean losing some of your consumer protections.
For example, federal student loan borrowers can suspend their payments without interest if they are experiencing financial hardship or are unemployed. The government also offers payment plans capped at a percentage of your income, with some bills costing as low as $0.
In addition, there are several forgiveness programs for federal borrowers.
Cancellation of student loans is still on the table, but your debt will no longer qualify if you refinance.
“If the debt forgiveness happens, it will happen before the midterm elections,” Kantrowitz said. “So borrowers can delay refinancing for a while.”
https://www.cnbc.com/2021/12/16/what-the-feds-likely-rate-hikes-will-mean-for-student-loan-borrowers-.html What the possibility of a Fed rate hike will mean for student borrowers