How the Fed’s Interest Rate Hike Could Affect Your Student Loans

General

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After years of holding the federal funds rate at or near zero, the Federal Reserve raised its benchmark rate by a quarter percentage point on March 16, 2022. The rate will now range from 0.25% to 0.50%.

With federal student loan payments set to resume on May 1, 2022, and the Fed expected to raise the rate again multiple times this year, you might be wondering how the rate hike will affect your student loans.

Here’s what you should know about how these higher interest rates affect student loans (and how to minimize the potential impact on your loans):

Why the Fed raises rates

The Federal Reserve is responsible for guiding the overall health of the American economy — which includes employment, price stability, and interest rates. When one or more aspects of this complex financial system fall out of balance, it’s the Fed’s job to get things back on track. The federal funds rate is one tool the Fed uses to do this.

This most recent rate increase — and the ones that will likely follow this year — is largely an attempt to put the brakes on inflation.

Keep in mind: The federal funds rate is the interest rate banks charge each other when lending money to other banks overnight. It also acts as a guide for other interest rates — so when the federal funds rate increases, other rates (like mortgage rates) usually do, too.

How does the Federal Reserve rate hike affect federal student loan interest?

All federal student loans taken out in 2006 or later have fixed interest rates — meaning your rate and payment will stay the same throughout the life of your loan. Congress sets these rates each year based on 10-year Treasury notes.

Unless you have a variable-rate federal loan originated before July 1, 2006, the federal funds rate increase won’t affect your loans.

Keep in mind: The only way to change the rate on federal loans is to refinance them. However, refinancing federal loans will cost you access to federal benefits and protections — such as income-driven repayment plans and student loan forgiveness programs.

Here are the federal student loan interest rates for the 2021-2022 academic year:

Direct Subsidized Loans: 3.73%
Direct Unsubsidized Loans (undergraduate): 3.73%
Direct Unsubsidized Loans (graduate and professional): 5.28%
Direct PLUS Loans: 6.28%

These rates will apply to any federal loans taken out before July 1, 2022. However, if you need to take out additional federal student loans afterward, you’ll likely end up paying a higher interest rate due to the fed rate increase.

The new rates for the upcoming academic year will be set in May 2022 based on the next 10-year Treasury note auction — this is where the Fed’s rate hike will have an indirect impact on student loan rates.

Tip: If you need to pay for school, it’s a good idea to rely on aid you don’t have to repay first, such as scholarships, grants, and other federal financial aid. If you still need additional funds, it’s usually best to take out federal student loans — mainly because they come with federal benefits and protections.

After you’ve exhausted your scholarship, grant, and federal student loan options, private student loans could help fill any financial gaps left over.

Find out your loan score

If you’re wondering how competitive your loan is, the loan score tool below can help. Just enter your APR, credit score, monthly payment, and remaining balance (estimates are fine) to see how your loan stacks up.

How does the Federal Reserve rate hike affect private student loan interest?

Unlike with federal loans, private lenders set the rates on private student loans according to market conditions. Additionally, private loans can come with fixed or variable rates. While a fixed rate will stay the same throughout the life of the loan, a variable rate can fluctuate over time.

If you have a fixed-rate private student loan, the Fed’s rate hike won’t affect your interest rate. But if you have a variable-rate loan, you could see your interest rate increase.

Keep in mind: If you need to take out a private student loan, the increase in the federal funds rate will affect the interest rate on your new loan.

How to deal with the new Fed rate changes

If you already have federal or private student loans with fixed interest rates and aren’t struggling to repay them, you probably don’t need to take any big steps. The rate hike won’t affect these fixed rates — though it will likely increase any other borrowing costs you might have, such as new auto loans or credit cards.

Additionally, if you have a variable-rate private student loan, it’s a good idea to look at your loan contract to see how your rate is set. Private lenders have long used the London Interbank Offered Rate (LIBOR) as a reference for their rates — however, regulators have directed lenders to phase out this index by June 2023.

Tip: The Fed has indicated that it will likely raise the federal funds rate again multiple times in 2022. If you have a variable-rate private loan, it might be a good idea to refinance it into a fixed-rate loan to avoid any potential costs that could come with rate fluctuations.

Depending on your credit, refinancing might get you a lower interest rate on your loans — which could save you money on interest and potentially help you pay off your loans faster.

You can use our calculator below to see how much you can save by refinancing your student loans.

Step 1. Enter your loan balance

Step 2. Enter current loan information

Step 3. Enter your new loan information to start calculating your savings

Lifetime Savings Increased Lifetime Cost $

New Monthly Payment $

Monthly Savings Increased Monthly Cost $

If you refinance your student loan at % interest rate, you can save will pay an additional $ monthly and pay off your loan by . The total cost of the new loan will be $.

When to refinance your student loans

Student loan refinancing is the process of paying off your old loans with a new private loan — leaving you with just one loan and payment to manage. However, while refinancing could be a good idea in some cases, it isn’t right for everyone.

If you’re thinking about refinancing, here are a few situations when refinancing could be worth it:

You can qualify for a lower interest rate. Depending on your credit, you might be able to get a lower interest rate through refinancing and reduce your overall costs. Keep in mind that you’ll typically need good to excellent credit to qualify for the lowest rates — a good credit score is usually considered to be 700 or higher. In general, the higher your credit score, the better your rate will likely be.
You want a lower monthly payment. If you opt to extend your repayment term through refinancing, you could reduce your monthly payments and lessen the strain on your budget. However, keep in mind that choosing a longer term also means you’ll pay more in interest over time.
You want a fixed interest rate. If you have a variable interest rate loan, you can switch to a fixed rate through refinancing. With a fixed-rate loan, you won’t have to worry about your rate or payment changing in the future — such as with the increase in the federal funds rate.
You want to remove a cosigner. Many private lenders provide a cosigner release option — meaning you can remove a cosigner from the loan. To qualify, you’ll typically have to make a certain number of consecutive, on-time payments, and you’ll have to meet the underwriting criteria on your own. Another way to remove a cosigner from a loan is through refinancing, which could be helpful if you’d like to remove your cosigner soon or your lender doesn’t offer cosigner release.

Keep in mind: Remember that while you can refinance both federal and private loans, refinancing federal student loans will cost you access to federal benefits and protections. For example, you’ll no longer be eligible for IDR plans or student loan forgiveness programs.

If you decide to refinance your student loans, be sure to take the time to shop around and consider your options from as many lenders as possible. This way, you can find the right loan for your situation.

Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.

Lender	Fixed rates from (APR)	Variable rates from (APR)	Loan terms (years)	Loan amounts
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.94%+	N/A	10, 15, 20	$7,500 up to up to $200,000 (larger balances require special approval)
Fixed APR: 2.94%+ Variable APR: N/A Min. credit score: Does not disclose Loan amount: $7,500 up to $500,000 Loan terms (years): 10, 15, 20 Max. undergraduate loan balance: $250,000 – $500,000 Time to fund: 4 months Repayment options: Immediate repayment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Must be a resident of Kentucky Customer service: Phone Soft credit check: No Cosigner release: After 12 months Loan servicer: Kentucky Higher Education Student Loan Corporation Max. graduate loan balance: $250,000 – $500,000 Credible Review: Advantage Education Loan review Offers Parent PLUS Refinancing : Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.15%+	1.83%+	5, 7, 10, 15, 20	$10,000 up to $250,000 (depending on degree)
Fixed APR: 2.15%+ Variable APR: N/A Min. credit score: Does not disclose Loan amount: $10,000 to $400,000 Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Military deferment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must have a credit score of at least 720, a minimum income of $60,000, and must be a resident of Texas Customer service: Email, phone Soft credit check: Does not disclose Cosigner release: No Loan servicer: Firstmark Services Max. Undergraduate Loan Balance: $100,000 – $149,000 Max. Graduate Loan Balance: $200,000 – $400,000 Offers Parent PLUS Refinancing: Does not disclose
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.84%+¹	1.99%+¹	5, 7, 10, 15, 20	$10,000 to $500,000 (depending on degree and loan type)
Fixed APR: 2.84%+¹ Variable APR: 1.99%+¹ Min. credit score: Does not disclose Loan amount: $10,000 to $750,000 Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Immediate repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay, loyalty Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 24 to 36 months Loan servicer: Firstmark Services Max. Undergraduate Loan Balance: $100,000 to $149,000 Max. Graduate Loan Balance: Less than $150,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.99%+²	2.94%+²	5, 7, 10, 12, 15, 20	$5,000 to $300,000 (depending on degree type)
Fixed APR: 2.99%+² Variable APR: 2.94%+² Min. credit score: Does not disclose Loan amount: $5,000 to $300,000 Loan terms (years): 5, 7, 10, 12, 15 Repayment options: Military deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: All states except for ME Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 24 to 36 months Loan servicer: College Ave Servicing LLC Max. Undergraduate Loan Balance: $100,000 to $149,000 Max. Graduate Loan Balance: Less than $300,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	4.5%+	4.45%+	5, 7, 10, 15, 20	$5,000 to $500,000
Fixed rate: 4.5%+ Variable rate: 4.45%+ Min. credit score: 680 Loan amount: $5,000 to $500,000 Cosigner release: Yes Loan terms (years): 5, 7, 10, 15, 20 Repayment options: Academic deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: Available in all states, except MS and NV Customer service: Email, phone, chat Soft credit check: Yes Loan servicer: FirstMark Max. undergraduate loan balance: $500,000 Max. graduate loan balance: $500,000 Offers Parent PLUS refinancing: Yes Min. income: $65,000 (for 15- and 20-year products)
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.91%+⁵	2.91%+⁵	5, 10, 15, 20	$1,000 to $250,000
Fixed APR: 2.91%+⁵ Variable APR: 2.91%+⁵ Min. credit score: 700 Loan amount: $7,500 to $200,000 Loan terms (years): 5, 10, 15, 20 Repayment options: Immediate repayment, academic deferment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and submit two personal references Customer service: Email, phone Soft credit check: Yes Cosigner release: After 36 months Loan servicer: Granite State Management & Resources (GSM&R) Max. Undergraduate Loan Balance: $150,000 to $249,000 Max. Graduate Loan Balance: $150,000 to $199,000 Offers Parent PLUS Refinancing : Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.43%+³	1.86%+³	5, 7, 10, 12, 15, 20	$15,000 to $250,000
Fixed APR: 2.43%+³ Variable APR: 1.86%+³ Min. credit score: 680 Loan amount: $15,000 to $250,000 Loan terms (years): 5, 7, 10, 12, 15, 20 Repayment options: Forbearance Fees: None Discounts: None Eligibility: Must be a U.S. citizen or permanent resident, have at least $15,000 in student loan debt, and have a bachelor’s degree or higher from an approved school Customer service: Email, phone Soft credit check: Yes Cosigner release: No Loan servicer: Mohela Max. Undergraduate Loan Balance: $250,000 Max. Graduate Loan Balance: $250,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	3.47%+⁴	2.44%+⁴	5, 10, 15, 20	$5,000 – $250,000
Fixed APR: 3.47%+⁴ Variable APR: 2.44%+⁴ Min. credit score: 670 Loan amount: $5,000 to $250,000 Loan terms (years): 5, 10, 15, 20 Repayment options: Academic deferment, military deferment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must be U.S. citizen or permanent resident Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: Yes Max undergraduate loan balance: $250,000 Max graduate loan balance: $250,000 Offers Parent PLUS refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	4.44%+ ⁷	N/A	5, 7, 10, 12, 15, 20	Up to $300,000
Fixed APR: 4.44%+ ⁷ Variable APR: N/A Min. credit score: 670 Loan amount: Up to $300,000 Loan terms (years): 5, 7, 10, 15, 20 Time to fund: Usually one business day Repayment options: Academic deferral, military deferral, forbearance, death/disability discharge Fees: None Discounts: Autopay Eligibility: Available in all 50 states Customer service: Email, phone Soft credit check: Yes Cosigner release: After 24 months Max. undergraduate loan balance: $300,000 Max. graduate balance: $300,000 Offers Parent PLUS loans: Yes Min. income: None
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.49%+	1.9%+	5, 7, 10, 15	Up to $300,000
Fixed APR: 2.49%+ Variable APR: 1.9%+ Min. credit score: 700 Loan amount: $5,000 to $300,000 Loan terms (years): 5, 7, 10, 15 Max. undergraduate Loan Balance: $125,000 Time to Fund: 10 to 30 days Repayment options: Immediate repayment, forbearance Fees: Late fee Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and have already graduated with at least an associate degree from an eligible institution Customer service: Email, phone Soft credit check: Yes Cosigner release: After 12 months Loan servicer: LendKey Technologies Inc. Max. graduate Loan Balance: $175,000 Credible Review: LendKey Student Loans review Offers Parent PLUS Refinancing: No
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.95%+	N/A	7, 10, 15	$10,000 up to the total amount of qualified education debt
Fixed APR: 2.95%+ Variable APR: N/A Min. credit score: 670 Loan amount: $10,000 up to the total amount Loan terms (years): 7, 10, 15 Repayment options: Military deferment, loans discharged upon death or disability Fees: None Discounts: None Eligibility: Must be a U.S. citizen or permanent resident and have at least $10,000 in student loans Customer service: Email, phone Soft credit check: Yes Cosigner release: No Loan servicer: AES Max. Undergraduate Loan Balance: No maximum Max. Gradaute Loan Balance: No maximum Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	3.29%+	N/A	5, 8, 12, 15	$7,500 to $300,000
Fixed APR: 3.29%+ Variable APR: N/A Min. credit score: 670 Loan amount: $7,500 to $300,000 Loan terms (years): 5, 8, 12, 15 Repayment options: Does not disclose Fees: None Discounts: None Eligibility: Must be a U.S. citizen and have and at least $7,500 in student loans Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 12 months Loan servicer: PenFed Max. Undergraduate Loan Balance: $300,000 Max. Graduate Loan Balance: $300,000 Offers Parent PLUS Refinancing: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.69%+	N/A	5, 10, 15	$7,500 up to $250,000 (depending on highest degree earned)
Fixed APR: 2.69%+ Variable APR: N/A Min. credit score: 680 Loan amount: $7,500 to $250,000 Loan terms (years): 5, 10, 15 Repayment options: Academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Available in all 50 states; must also have at least $7,500 in student loans and a minimum income of $40,000 Customer service: Email, phone Soft credit check: Does not disclose Cosigner release: No Loan servicer: Rhode Island Student Loan Authority Max. Undergraduate Loan Balance: $150,000 – $249,000 Max. Graduate Loan Balance: $200,000 – $249,000 Offers Parent PLUS Refinancing: Yes
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All APRs reflect autopay and loyalty discounts where available \| ¹Citizens Disclosures \| ²College Ave Disclosures \| ⁵EDvestinU Disclosures \| ³ ELFI Disclosures \| ⁴INvestEd Disclosures \| ⁷ISL Education Lending Disclosures

About the author

Evelyn Pimplaskar

Evelyn Pimplaskar is Credible’s editor-in-chief. Her career has spanned nearly every form of writing and editing, from newspaper and magazine articles, to press releases, case studies and online content. She’s covered topics ranging from volatile local elections and tools to dissuade birds from roosting on commercial buildings, to income taxes, investing, borrowing and saving.

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