What Stock Market Volatility Means for Your Student Loan
Your student loan is available with a variable or fixed interest rate. If it’s fixed, you have nothing to worry about (other than this whole crushing debt problem). But if you have a floating rate loan, this rate can change along with various economic factors – for example, the stock market.
The variable rate of your student loan is indirectly related to certain factors affecting the economy. The stock market is one of them, explains Forbes’ Stephen Dash. And when it changes, that could be a reason for your lender to increase your rate (which means you will be paying more each month). Here’s how he explains it:
The interest rate on variable rate student loans is usually linked to the London Interbank Offered Rate (LIBOR). LIBOR indirectly tracks the interest rate set by the Federal Reserve and has historically been highly correlated with the actions of the Federal Reserve. Federal student loan interest rates are set once a year when they are compared to the yield on 10-year US Treasury bonds auctioned in May … legal entities must borrow and consume – contributing to stronger economic growth. Conversely, in an environment of strong economic growth, they will raise interest rates to limit investment and consumption.
As Dash points out, the Fed’s decision to raise rates (and they are expected to be raised by the end of the year) will affect your student loan rate and indirectly the stock market. This is something to be aware of if you have a variable loan. For more details, read his full post at the link below.
The Impact of Financial Market Volatility on Student Loans | Forbes