The United States Federal Reserve building located in Washington, D.C.
Experts are predicting that the U.S. Federal Reserve (the Fed) is going to boost interest rates after its June meeting. Apparently, the chances of it happening are almost 94 per cent after central bank officials said a recent economic slowdown in the first quarter was “likely to be transitory” according to The Financial Times.
This latest rate hike is just in time for the private student loan season when many incoming students start looking for additional funding for their college expenses over summer. The rate change will also impact current student borrowers with variable interest rates since they typically rise with the benchmark rate set by the Fed.
One strategist warns that the decision to raise interest rates really depends on how well the economy is doing, and at the moment, the Fed is being dismissive about recent economic weakness. Despite this concern, Neil Wilson, who was quoted by the Financial Times, contends that the Fed is doing right by warning the markets about the possibility of a hike. The move should ensure a smooth transition and to prove that the economic results during the first quarter were legitimately “transitory.”
This development comes after interest rates on federal student loans were raised last month. Undergraduate student loans shot up to 4.45 percent (an increase from 3.76 percent), graduate student loans increased to 6 percent (up from 5.31 percent), and PLUS loan rates rose to 7 percent (a boost from 6.31 percent). The new rates take effect on July 1 for those taking out loans for the 2017-18 school year.
The rate hikes are technically a signal for a growing, successful, and healthy economy. Despite this optimism, student borrowers have enough to worry about in order to look upon these new interest rates with pessimism. Currently, student borrowers account for $1.41 trillion in outstanding student debt. With the default rate pushing 11 percent, higher interest rates mean larger monthly student loan payments. Whether the rate hikes will positively or negatively affect the student debt issue remains to be seen.
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