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What Interest Rate Hikes Mean for Your Student Loans in 2022

Learn what rising rates mean for your student loan debt.

Published May 11, 2022

9 min read

When it comes to interest rates, 2022 is likely to be a year full of changes. On March 17, 2022, the Federal Reserve voted to raise interest rates by a quarter percentage point, bringing the rate to a range of 0.25%-0.5%. This marked the first rate hike since December 2018 and is intended to address inflation concerns. And on May 4, 2022, the Fed increased rates another half-a-percentage point, marking the largest rate increase in over twenty years. So, what does this mean for your student loans?

Due to these rate increases, variable rate loans may become increasingly expensive. If you have private student loans, now may be the time to refinance your loans to a lower rate. Read on to learn more about how to handle potential student loan rate increases.

2022 Federal student loan interest rates

Federal loans tend to have lower interest rates, hovering at about an average of 4.12% over the past 5 years, according to Education Data. In fact, there was an overall decrease until 2018’s peak.

But 2022 will likely be a year full of rate increases and, when you’re managing student loans, you’ll want to be prepared and well-informed of your options.

Existing federal student loans remain fixed

When you take out federal student loans, they are given out at a fixed rate. Therefore, the Federal Reserve’s rate hike will not affect any existing federal student loans.

New federal student loans may increase rates

Since the fixed rate for loans is higher, it will impact new federal student loans taken out now. Higher interest rates may mean you pay a higher total over time, as well as a higher monthly payment.

Current interest waiver and payment pause

Due to the pandemic, interest has been waived and student loan payments have been paused as part of the CARES Act, and subsequent extensions by the Department of Education and current administration. As the deadline has been extended to August 31, 2022, those who were impacted by financial difficulties during the COVID-19 pandemic have gotten an extended break from student loan payments. While further extensions remain unclear, it’s still a good time to plan how to manage your student loans when payments resume.

2022 private student loan interest rates

Private student loan rates are currently ranging from 3.34% to 12.99% (fixed) and 1.04% to 11.98% (variable). Due to the Federal Reserve’s hike, variable rate student loans will see an increase while fixed rate student loans that already exist will be unaffected.

Shopping around and refinancing your loans can be an option to secure more competitive rates. You can also convert variable rate student loans to fixed rates, so you won’t have to worry about future rate hikes that are likely to come.

Existing fixed rate private student loan rates remain fixed

As mentioned previously, the Federal Reserve’s rate hike will not impact existing fixed rate student loans,
although refinancing may be an option to improve fixed rates based on your new financial status.

New and existing variable rate private student loans rates may increase

The rate hikes will impact any new private student loans as well as any existing student loans that feature a variable rate.

Even though variable rate private student loans may have a lower rate, they can still be impacted by the Federal Reserve hikes and can become more expensive.

Refinancing to a fixed rate can help you avoid unpredictable economic conditions.

Refinance to a lower student loan rate

In any economic condition or scenario, when you evaluate student loans for refinancing options (either to improve rates or convert to fixed rates), you can create a plan to optimize your budget and manage your debt.
Furthermore, if you have excellent credit or your credit score has improved, you might be able qualify for a lower interest rate on a private student loan. In some cases, this can be better than your rate with an existing federal loan.

Refinancing, in general, could help you lower your rate or lower your monthly payment. Restructuring your loan could also help you pay off your debt sooner.

However, it’s important for those with federal student loans to be aware that refinancing to a private loan will remove certain benefits including income-driven repayment plans, Public Service Loan Forgiveness, federal forbearance and deferment, including the current federal loan payment and interest pause, and other benefits offered to federal borrowers.

How to prepare your student loans for the interest rate hike

To prepare for any upcoming rate hike increases:
1. Evaluate current rates on existing student loans
2. Identify any variable-rate loans to convert to fixed rates
3. Shop refinancing options

To learn more about student loan refinancing options with Laurel Road, click here.

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Calculate Your Payments

This calculator is for illustrative purposes only and does not take into account benefits currently offered by the federal government and should not be used for loans being repaid under a federal program. For additional details click here.

In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.

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