The Federal Reserve raised interest rates last month and it’s starting to increase the rates borrowers pay on certain loans, including student loans.
While borrowers in a fixed rate student loan don’t have to worry about the cost of borrowing getting more expensive, those with a variable rate loan do. That’s because variable rate student loans move up when interest rates go higher and down when they go lower. That is evident in the rate borrowers of a variable loan at student loan lender Earnest are paying as of April.
Earnest raised the low and high end range of its variable loans to between 2.75 percent and 6.23 percent as of April 1st according to LendEDU. Last month, the interest rates on its variable loans were set at between 2.55 percent and 6.03 percent. Fixed rate loans are remaining steady from March to April at between 3.75 percent and 6.64 percent.
In mid-March the Fed increased interest rates by a 0.25 percent with the Fed signaling two or more interest rate increases in 2017. “The simple message is the economy’s doing well,” Federal Reserve Chair Janet Yellen said at the time. “It’s performed well over the last several years. The unemployment rate has moved way down, and many more people feel optimistic about their prospects.” The Fed is also forecasting another rate hike in 2018 if the economy continues on its current trajectory.
Earnest isn’t the only student loan lender to raise the rates on its variable loan products since March. SoFi, one of the nation’s largest fintech companies, raised the rate on its variable loans to between 2.565 percent and 6.490 as of April 1st. That compares to between 2.365 percent to 6.29 percent interest in March. While the rates on variable loans are inching higher and could increase even more, student loan borrowers have an option. They can refinance student loans into a fixed rate loan, but shouldn’t wait too long. The rate on Federal backed student loans could go up this summer as Congress does its annual change to interest rates on Federal student loans.
Author: Donna Fuscaldo
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