The expected rate drop comes amid falling inflation and may bring lower borrowing costs for student loans.
The Federal Reserve is expected to cut its benchmark interest rate for the first time in four years when it meets Wednesday, prompting questions on how a drop could affect student loans.
Interest rates have risen since 2020, climbing gradually as the Fed’s benchmark federal funds rate went from 0 percent during the early pandemic to the current 5.25 to 5.5 percent range. A falling inflation rate has signaled the expected drop, although experts are split on predicting a typical slash of 25 basis points or a steeper, 50 basis points reduction. Either would lead to lower borrowing costs across the economy, including those for mortgages, auto loans and student loans.
If borrowers acquired a fixed-rate loan for their student loans—such as all federal loans and some private loans—Fed rate changes won’t affect them regardless of whether the rate increases or decreases. Those who will see an impact include new borrowers planning to take out a loan after the rate change and existing borrowers who have a variable-rate private loan.
