The Federal Reserve just hiked interest rates again. Another quarter percent, this time. For different folks, this means different things. If you’re a homeowner with a variable interest rate, your mortgage payment just went up. If you carry credit card balances, your interest rate immediately increased. And if you’re taking out student loans?
It’s a good news, bad news scenario. The good news is that the Department of Education has already set the federal rate for 2018-19 student loans. It will remain at 5.05 percent, which is more than a half percent higher than last year. With three more expected hikes coming over the next year, some of the bad news is that it’s hard to say how high it will go next year.
Those struggling with student loan debt often also have credit card debt. And there is no delay on that increase. MagnifyMoney analysis determined that the average consumer with credit card debt will pay $150 per year in added interest due to that quarter-percent increase.
Another issue that affects all Americans, but particularly those already overwhelmed by student loan debt, is that, although the economy is booming, household income is not. Even with a strong stock market, steady economic growth and low unemployment, many people are still struggling.
A recent NPR story quoted Greg McBride, chief financial analyst for Bankrate.com: “For a lot of households, their wages have barely kept pace with the increases in household expenses — if even that. Layered on top of that is rising interest rates. This creates a rising headwind blowing against consumers trying to pay down their debt. Unfortunately, it’s just going to further strain families that already have tight household budgets.”
For those that are struggling, increases in federal interest rates mean higher costs for goods and services. Increased inflation could spell trouble since wages are barely keeping up with relatively slow inflation rates.
Of course interest rate hikes affect many people, not just student loan borrowers. For those in their 30’s and 40’s, buying a house—already extremely challenging to qualify for—will only get more expensive. For example, a quarter-point rise on a $300,000 mortgage increases the payment by about $50 per month, which means it will cost you nearly $18,000 over the life of the loan. Sadly, with three more increases on the horizon, buying a house may get even further out of reach.
For older Americans, especially those on fixed incomes, savings and retirement accounts will continue to be overmatched by increased inflation. If they happen to have any money to invest, older Americans are usually more risk-averse. Because of this, they do not fully benefit from the rising stock market.
No matter your age or financial situation, if you are struggling now, rate hikes will only make it tougher. And, as long as wages remain low, there are no signs that there’s any relief in sight.
Options are available to help
Most people do not realize that there are programs designed to help those who may be struggling with their student loan payments. Thousands of borrowers have trusted Ameritech Financial to be their advocate. Click here to find out what options are available. Our services could help you get back on track.Get Started Learn More