The Federal Reserve (The Fed) recently raised interest rates by .25% in an effort to put a cap on the high inflation rates currently sweeping across the country. The increase was announced on March 22 and is the ninth increase within the past year, all to try and fight rising inflation.
Inflation is the increased rate of goods and services, which is affecting the lives of individuals across the nation. Interim Vice Provost and Vice President of Academic Affairs Anne Alexander explained how the increased interest rates can counter inflation.
“One of the ways that they can fight inflation is by increasing interest rates. And increasing interest rates means that it becomes more expensive to borrow money,” Alexander said.
“We had a lot of zero interest rate kind of policy regime for a long time. And that meant that money was free to borrow.”
Students can expect their student loans to be affected by this change, which are also set at an interest rate.
“If you’re a student or if you’re a new incoming student, or if you’re a student who needs additional federal loans in the summer, you can expect to pay about 5% more,” UW economics professor Felix Naschold said.
“Whereas if you took out that same loan a year ago, you would have paid about 3.7%. So depending on what situation you’re in, if you’re an outgoing student who is no longer taking on new loans, it’s not going to affect you at all because it’s fixed. But if you’re a student who is going to take on new loans, even at the fixed federal rate, those rates will be higher.”
Scholarships will not be affected by the interest rate spike.
“Scholarships, in some ways, is a fixed income,” Naschold said. “The scholarship doesn’t grow bigger when interest rates go up.”
“If you have a fixed income and inflation is high, that means over time, your fixed income scholarship is worth less.”
Students can also expect to see changes in rates on their credit cards.
“Credit card rates are jacked up whenever The Fed increases interest rates,” Alexander said.
“I would say try to make sure that you can pay all of it off, if possible, every single month. If you have to carry a balance, that’s where you’re going to start incurring the interest and fees,” Alexander said. “If you can’t go well above the minimum payment, don’t go with [the] minimum. The minimum is a way to get yourself in a hole very easily.”
Getting out of and staying out of debt can be difficult for a college student paying tuition and working entry-level jobs. However, Alexander suggests the best place to begin is budgeting and looking for savings.
“Look for deals; always look for BOGOs, 25% off today, or UW students get [a student] discount,” Alexander said, “And I would say a really important thing to do is think about the subscriptions you have. Those can really add up over time.”
“As hard as it is even, especially now, it’s a really good idea to put $1 or $2 into savings every month because that will add up over time, and it gives you a little bit of wiggle room if some emergency does happen.”
