Buzz
Student loans come with either fixed or variable interest rates. If you have a fixed rate, your payments remain predictable (though the debt burden is still heavy). However, with a variable rate loan, your interest rate can fluctuate based on economic factors, like the stock market.
A variable-rate student loan is influenced by broader economic trends, including the stock market, according to Forbes’ Stephen Dash. When these factors shift, it could lead to an increase in your loan’s interest rate, which means higher monthly payments. Here’s how Dash explains it:
The interest rate for variable-rate student loans is typically connected to the London Interbank Offered Rate (LIBOR), which is influenced by the Federal Reserve's actions. LIBOR has historically tracked these changes closely. Federal student loan rates are set annually, based on the yield of 10-year U.S. Treasury bonds in May. When the economy is slow, the Federal Reserve tends to lower interest rates to encourage borrowing and spending. In times of strong economic growth, they raise rates to cool down excessive investment and consumption.
As Dash explains, the Federal Reserve’s decisions to raise rates (which are anticipated by the year’s end) will affect your student loan rate. The stock market can also indirectly play a role, especially if you have a variable-rate loan. For more detailed insights, check out his full post through the link below.
Image courtesy of GotCredit.
