As inflation rates continue to rise, the Federal Reserve decided to take a bold step on Wednesday and raise the federal interest rate by 0.75%, the biggest increase in 28 years.
At the press conference announcing the rate hike, Fed Chairman Jerome Powell explained, “We at the Fed understand the challenges caused by high inflation.” He added: “We are firmly committed to bringing inflation down and we are moving quickly to do so,” CNBC reports.
Of course, all students know that in April, President Joe Biden officially extended the moratorium on student loan payments until August 31, 2022, and in response to the COVID-19 pandemic, most student loans feds and their interest rates have been suspended since March. 2020.
Just as inflation has a significant impact on the economy, so do increases in the federal funds rate. But how much do the Fed hikes affect those who currently hold federal student loans?
The short answer is not a lot. The Fed rate hike will only affect interest rates on outstanding loans for a relatively small number of students.
As Forbes reports, since July 1, 2006, federal student loans have been linked by fixed rates, so existing loans will not be affected. The only exception to the above would be if you received a variable interest student loan before July 1, 2006. If this is the case, the interest rate on a loan still outstanding on that date would increase.
However, students and families who have taken out private education loans may see an increase in their interest rates depending on the terms and conditions of their student loan agreements. Private student loans come in all sorts of fixed and variable terms, depending on the lender.
According to Forbes, private loans make up about 8% of the student loan market with an estimated total of $131 billion in outstanding private student loans, according to MeasureOne’s semi-annual Private Student Loans Report.
12 feet | Student Loans, Mortgages, Credit Cards: Here’s What Will Cost More As The Fed Hikes Interest Rates
MeasureOne Q3 2021 Private Student Loan Report (hubspotusercontent00.net)
12 feet | What Happens to Student Loans When the Fed Raises Rates
This article originally appeared on GOBankingRates.com: Will Rising Interest Rates Increase My Student Loan Debt?