If you have student loan debt, you may be wondering how the recent Federal Reserve rate cuts will impact your interest rate, monthly payments, and loan terms.
While the Fed’s decision to reduce rates may seem like good news for borrowers, the effects can vary depending on whether your loan is federal or private.
Key takeaways from rate cuts
For federal student loans, the news isn’t great.
The rates for these loans are set once a year, on July 1, and remain fixed for the entire year.
This means that any recent rate cuts by the Fed won’t impact the interest rates on loans disbursed before July 1, 2025.
If you’ve already taken out federal student loans, you’ll be stuck with the rates you have until the next adjustment in July 2025, regardless of the Fed’s actions.
Unfortunately, this includes loans that were disbursed at higher rates, such as 6.53% for undergraduates and 8.08% for graduate students in 2024.
However, the situation is different for private student loans.
These loans, especially those with variable interest rates, are more directly impacted by changes in the federal funds rate.
As the Fed cuts rates, the benchmark for private loans often decreases as well, meaning borrowers with variable-rate loans could see their interest rates drop.
If you’re looking to refinance your loans, this could be a good time to lock in a lower rate, especially as rates for new private loans may be more competitive than last year.
If you’re considering refinancing, it’s essential to weigh the pros and cons.
Refinancing federal loans with a private lender could save you money in the short term, but you’d lose important protections like income-driven repayment options, deferment, and federal loan forgiveness programs.
If you plan to pursue forgiveness or need access to federal protections, keeping your loans federal may be the best choice.
The impact of the Fed’s rate cuts on your student loans depends on the type of loan you have.
Federal loan rates won’t change until next year, while private loan borrowers may benefit from lower rates sooner.
Always consider your long-term goals before making any decisions.