Last week, the Federal Reserve raised its benchmark rate, the second time in three months, which means interest rates are ticking up between 0.75 percent and 1 percent on basically any service or product with an interest rate.
While the move signals an improvement in the economy, it also means that borrowing will get more expensive. That’s particularly true of variable rate loans that move with the prevailing interest rate. However, in the case of student loan lender Earnest, it’s actually reducing its interest rate slightly on some of its loan products at a time when the Fed is moving them higher.
According to LendEDU, From February 7 to March 17 Earnest left the student loan refinancing rates on its variable loans untouched between 2.55 percent and 6.03 percent. The same cannot be said of fixed interest rates for Earnest student loan refinancing. In February, Earnest was charging fixed interest rates between 3.75 percent and 6.74 percent, but as of March 17, the range shortened to 3.75 percent and 6.64 percent, a slight decrease on the upper bound.
While it’s not a huge interest rate reduction, any savings would be welcome to student loan borrowers who owe on average around $28,000. Earnest contends that it is able to offer low interest rates on student loan refinancing because it uses nontraditional data to underwrite loans including savings patterns, investments, and career trajectory.
When it comes to the Fed raising rates, the impact can take some time to be felt. While Earnest kept the rates on its variable student loan refinancing product intact, that may change in the months to come. When determining the rate on a variable loan most lenders rely on the LIBOR which is the rate that a group of international banks charge each other when making loans. This rate determines the interest rate on all sorts of loans including private student loans and the refinancing of those loans. The LIBOR can change from month to month and even week to week. According to Bankrate.com the three month LIBOR rate stands at 1.14, which is higher than 1.05 a month ago. Last year, the LIBOR rate was 0.62 within the same time frame.
Author: Dave Rathmanner
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