What Yesterday’s Fed Rate Hike Means for Student Loans

Yesterday, the Federal Reserve raised short term interest rates by 25 basis points. The new target rate for federal funds is 5.0%.
What’s the impact of this rate hike on student loans? Frankly, more pain…. The interest rate on most outstanding Stafford and PLUS loans is reset each July based on the 91-day Treasury bill auction in late May. Because the 91-day T-Bill rate generally tracks the federal funds rate, the repayment rate of Stafford loans made since July 1998 is expected to be around 7.3%. The rate on PLUS loans will be around 8.1%.
We’ll know for sure what the exact rates will be on May 30, after the final May t-bill auction. So if you’re eligible to consolidate your student loans, do it now so you can lock in your interest rates and avoid this hit in your wallet!