Forbes: What Happens To Student Loans When The Fed Raises Rates

December 15, 2015

The Federal Reserve is expected to raise interest rates for the first time since June 2006. So how could this affect your student loans?

For most borrowers, a Fed rate hike will have no effect on their student loan rates. That’s because federal student loans paid out since July 1, 2006, have a fixed interest rate. That means the interest rate on the loan is already set for the entire term of the loan. A fixed rate cannot be changed by your loan servicer or the federal government no matter where the Fed moves interest rates.

Federal loans account for about 93%, or $1.18 trillion, of the $1.27 trillion student loan market, according to MeasureOne, a student loan data provider. Most of those loans have a fixed rate.

Interest rates on federal student loans are set by Congress. By law, fixed rates on federal student loans are determined according to a formula based on the auction of 10-year Treasury notes each year for loans disbursed on July 1 through the following June 30.