What Fed Rate Cut Means for Student Loans

The Federal Reserve Bank chairman Jerome Powell announced on Thursday that the Fed would lower interest rates by a quarter-point. This will be the first rate cut by the Fed since 2008, when they were trying to combat the financial crisis. This will have wide spread implications for Americans, mostly positive but some negative. One area Americans will benefit in is with student loan interest rates.

While 2020 Democratic presidential candidates like Bernie Sanders are touting their plans for ‘free college for all’ many American students remain reliant on private or federal loans to graduate college. Free college for all may never happen, but the rate cut will provide students with a variable rate loan some much needed relief.

While the majority of Americans use Federal loans to pay for college, Congress uses fixed rates so they will not be affected by the rate cut. However, over 1.4 million Americans a year take out private loans, some fixed and some variable. For those who took out a variable rate loan, which follows the prime rate, they should expect to see a decrease in amount of interest they’re paying.

According to the Federal Reserve Bank in New York, there is about $1.5 trillion in outstanding student debt held by about 20% of the population. Furthermore, behind buying a home, a college education is the largest expense someone is likely to incur. Fortunately for some student borrowers, this rate cut should provide them some much needed relief.

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