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An interest rate hike and it’s impact on the future of Student Loans

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The recent focus from the Presidential candidates on the economy and the future of student loans has caused me to look at the connection between a rate hike in the Federal Interest Rate the future of student loans, both Private and Federal.

When we speak of student loan debt, we really have to talk in terms of long term debt. With the national average of student loan burden of current graduates exceeding $30,000.00, addressing that debt load and arriving at a manageable student loan debt resolution option will take a long time. Therefore, the effects of any rate increase, even if it is incremental, will have a huge long term negative impact on addressing the repayment of student loans. According to the Wall Street Journal, 97% of experts predict an increase over the next year.

I recently had a nice long chat with a financial guru, my friend Mark Golchin, Ph.D., Owner of San Diego Mortgage & Realty. He was kind enough to lend me his view: 

Anticipation of a rate increase ahead of the Fed's next meeting on Dec.16, 2015 has caused increased concerned about the future interest rates. The Fed has been trying to raise the interest rate and a more seriously look is being made. In all of the past five meetings of Federal Open Market Committee, Fed did give signals that they will raise the rate soon and it may be imminent. The Fed has been looking at a variety of factors so there is very good reason to do so. The predictions are that there is a 75% chance that this will happen. The Fed could either raise the Fed Fund Rate or the Fed Discount rate. Either of which would directly impact all of the rates not limited to Prime Rate. This would include fixed and variable mortgage rates, saving rates, credit card rates, all other adjustable rates including student loans. Of course this change of higher adjustable rates will have long term cost consequences for any kind of long term borrower, student loan borrowers in particular.

Mark Golchin, Ph.D.
San Diego Mortgage & Realty

All this being said, it seems that the future of student loan borrowers is not all that promising. Then again, it has not been for quite some time.

However, I have some suggestions that will certainly avoid some of the long term costs of addressing the long term debt resolution of student loan repayment.

CONSOLIDATE NOW:

Most student loan borrowers have a multiple of loans. That is because the borrow funds for each semester of college. Additionally, the student loan borrower may also have a break in education, or go back to school after years of working to pursue a different degree or augment their current one for advancement in employment.

Some of these loans may have higher interest rates than the others, and some of them may very well be variable. If all these loans can be consolidated into one loan with a blended fixed interest rate, any future rate hike would not adversely affect the consolidated loan. It would be beneficial to have this analysis done sooner than leter.

REFINANCE:

There are several programs out there that specialize in Private Student Loan Re-Finance. This is accomplished by an analysis of the profession, income, expenses, future earnings, and overall credit worthiness. If a fixed and lower interest rate can be obtained, then it may be a good option to avoid the impact of a future rate adjustment by The Fed.

AVISORY: Never refinance a Federal Student Loan with a Private Refinance Student Loan.

Regardless of when and if an adjustment of the interest rates takes place. Student Loans will be impacted.

See:

http://www.businessinsider.com/heres-how-a-fed-rate-hike-will-impact-your-student-loans-2015-12

http://www.wsj.com/articles/wsj-survey-economists-are-convinced-fed-will-raise-rates-in-december-1449759601

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