Although it is uncertain how much the Fed plans to hike interest rates, many experts have said they believe it will be 0.25%. While some experts still predict the rate hike will not take place until 2016, others say a hike could still occur this fall. The good news is that the majority of borrowers will only see a minimal increase in their monthly payments unless a particular graduate borrowed larger amounts.
“A potential Fed rate increase of 0.25% wouldn't have much of an impact on the monthly payment for the average student loan borrower,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based nonprofit organization.
The interest rates of federal student loans do not change during the duration of a loan. Individuals who took out a private loan with a fixed interest rate will not have to worry about having to pay extra either.
Borrowers who took out private student loans with a variable interest rates should expect increases in their rates and monthly payments, because the variable rate is tied to the prime rate, said Jason Vasquez, a spokesman for Wells Fargo (WFC) , the San Francisco-based financial institution.
Interest rate increases are never favorable for borrowers, whether they have student loans or credit card debt, said Raj Rajan, CEO of Ceannate, a Rolling Meadows, Ill. company that works with the U.S. Department of Education on student loan and default issues. Graduates can look into plans which offer a reduction in monthly payment amounts, he said.
“Students do not react to rate changes the way auto or home buyers might, because their needs are more static,” he said.