Student Loans – How Interest Rates Are Set on Federal Loans
You’ve got to take on student loan debt these days if you want to go to college unless you are very lucky. Student loan debt is like any debt. The key to how quickly you can pay it off often comes down to the interest rates. For people with federal loans, the good news is interest rates are quirky in a positive way.
The economic condition of the United States is supposedly in a recovery from the Great Recession we recently suffered. With business slow and unemployment in double digits, it is hard to make much of an argument that this recovery has really hit most of us. As we stagger forward, things will improve slowly, but a fiscal accounting must take place. That accounting is going to come in the form of higher interest rates.
We have interest rates that are so low now that we’ve rarely seen such an economic condition in our history. The Federal Reserve essentially is loaning out money to banks at a zero interest rate. That can’t last. When it changes, rates are going to move up and so are your debt loads. For those with fixed rate loans, the news will mean little since rates will stay the same on the debt in question. For those with adjustable rates, things are going to get ugly.
What about federal student loans? Well, I have really good news if you are carrying federal student loan debt. The rates on your loan are not set by the market or some cold bank per se. Instead, Congress actually sets the rates on your loans. The legislative body actually sets a range of rates that can be charged for each loan, but the banks actually issuing the money always [and I mean always!] go with the highest possible allowed rate. The rates can change year to year, but are usually much lower than private loans and such. You can access the current rates for Perkins, Stafford and PLUS loans at the website for the Department of Education.
Like all debt, the interest rates on student loans are going to be going up in the next few years as the Federal Reserve raises rates in general. If you have federal loans, you can expect the pain of these increases to be much smaller than with private loans.
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