Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."
The Federal Reserve again raised its benchmark rate by 75-basis points on July 27, 2022. The last increase, also 75-basis points, was on June 15. The rate will now range from 2.25% to 2.50%. The last time the Fed made a 75-basis point hike was 1994. The increase is the Fed’s answer to calm the market and curb inflation.
With federal student loan payments set to resume after September 1, 2023, and the Fed expected to raise the rate again multiple times this year, you might be wondering how the rate hikes 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
- How does the Federal Reserve rate hike affect federal student loan interest?
- How does the Federal Reserve rate hike affect private student loan interest?
- How to deal with the new Fed rate changes
- When to refinance your student 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.
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.
Here are the federal student loan interest rates for the 2022-2023 academic year:
- Direct Subsidized Loans: 4.99%
- Direct Unsubsidized Loans (undergraduate): 4.99%
- Direct Unsubsidized Loans (graduate and professional): 6.54%
- Direct PLUS Loans: 7.54%
These rates will apply to any federal loans taken out before July 1, 2023. 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 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.
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.
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.
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
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.
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|
|4.9%+||5.33%+||5, 7, 10, 15, 20||$10,000 up to $250,000
(depending on degree)
|7.0%+1||7.29%+1||5, 7, 10, 15, 20||$10,000 to $500,000
(depending on degree and loan type)
|6.99%+2||6.99%+2||5, 7, 10, 12, 15, 20||$5,000 to $300,000
(depending on degree type)
|6.0%+5||8.05%+5||5, 10, 15, 20||$1,000 to $250,000|
|5.48%+3||5.28%+3||5, 7, 10, 12, 15, 20||$10,000 to $250,000|
|5.9%+4||8.4%+4||5, 10, 15, 20||$5,000 to $250,000|
|6.94%+ 7||N/A||5, 7, 10, 12, 15, 20||Up to $300,000|
|5.24%+||5.54%+||5, 7, 10, 15||Up to $300,000|
|6.2%+||N/A||7, 10, 15||$10,000 up to the total amount of qualified education debt|
|5.79%+||N/A||5, 10, 15||$7,500 up to $250,000
(depending on highest degree earned)
|Compare personalized rates from multiple lenders without affecting your credit score. 100% free!
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 | 8Nelnet Bank Disclosures