Student center

Rising interest rates will hit student borrowers

Larisa Elizondo graduated from the University of Michigan debt-free, but to get a law degree she had to take out about $160,000 in student loans.

“There was a time when I had to get a second job as a waiter at a bar so I could do it all, because, you know, my student loan payments were $1,150 a month,” said Elizondo.

Now, as an established lawyer, Elizondo feels like she’s earning enough to finally start a family, but rising interest rates are worrying some Americans. On Wednesday, the Federal Reserve raised interest rates by just under one percent, the biggest increase in nearly 30 years, to keep inflation under control.

“I tried to figure out, should I refinance, do something to refinance the other private loans?” said Elizondo.

Today, Elizondo still owes about $40,000 in private student loans and $30,000 in federal student loans. Interest rates on federal loans are fixed, but the rates on most private student loans are variable, which means that rising interest rates make them more expensive to repay.

“When the Fed raises interest rates, private student loan interest rates go up, as well as, you know, car loans and mortgages and things like that,” said Cody Hounanian, executive director of the Student Debt Crisis Center.

The experts at NerdWallet, a website offering free financial advice, agree. They note that rising interest rates, not directly related to the increase in the Federal Reserve, will also make loans more expensive for those taking out federal student loans for the upcoming school year.

“So new federal student loan borrowers are going to see their own interest rate hike starting July 1. Interest rates next year will be almost double what they were two years ago. years,” said Art NerdWallet student loan expert Anna Helhoski.

Sen. Elizabeth Warren (D-Mass.) is among a group of lawmakers calling on President Joe Biden to forgive federal student loan debt at $50,000 for each borrower.

“It would erase all debt for about 85% of those with student loan debt, and it would make the debt manageable,” Warren said.

The White House said the president has already authorized about $25 billion in “targeted” relief for borrowers over the past 18 months. Advocates still hope it will do more by offering broad relief to anyone with federal student loans.