How the Fed interest rate increase impacts higher education
Seminoles borrowing student loans with variable interest rates most likely felt the impact of the Federal Reserve’s decision to raise short-term interest rates on Sept. 16.
This action marked the first hike since 2023 and aims to bring inflation rates down to 2%. The inflation rate was 3.4% in August, according to the Labor Department’s cost-of-living index. The Fed’s vote to raise the rates was unanimous despite pressure from President Donald Trump to lower them.
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR,” Trump said in a Truth Social post.
Higher interest rates mean borrowing costs increase, which impacts consumers paying off credit card debt or seeking loans for large purchases like cars and homes. Conversely, savers may benefit; although the Fed does not set interest rates for savings accounts and bonds, banks can raise yields within the target range to remain competitive.
How are student loan rates affected?
Tallahassee students that have taken out loans to support their higher education will be impacted differently based on the types of loans they have taken out. The decision’s impact is indirect and is tied to the 10-year Treasury yield.
Florida State, Florida A&M, and Tallahassee State College students that are borrowing through existing federal student loans do not need to worry about the news, as their interest rates remain fixed for the life of the loan. New federal student loan rates are determined annually each spring based on a 10-year Treasury note auction.
More: What students should know about the overhaul of federal student loans
However, students holding private student loans with variable interest rates may face an increase in borrowing costs. Because private variable loans are influenced by indexes that follow the federal funds rate, these borrowers will see their monthly payments rise.
FSU’s Gus A. Stavros Center for Economic Education Director Joseph Calhoun advises students to know what kind of loans they hold.
“Interest charges differ between subsidized and unsubsidized loans. There are also differences between loans for undergraduate and graduate students,” Calhoun said to the FSView. “Since interest is calculated on a daily basis and a typical repayment period is 10 years, interest rates have a large impact on the monthly payment. Students should estimate their monthly payment before they accept a loan.”
Since the Fed’s rate hikes aim to cool inflation, any resulting economic slowdown could cause future Treasury yields to drop, potentially leading to lower federal loan rates next academic year.
Financial resources at Florida State
The Stavros Center offers Unconquered by Debt, a financial wellness program that educates students on personal finance, financial literacy, and decision-making.
“Student loans are discussed in the Unconquered by Debt workshop titled ‘Stepping Into Your Career,’ which is offered several times each semester,” Calhoun said.
Students interested in expanding their personal finance knowledge can register for other free workshops through the Stavros Center. Fall 2026 workshop topics include “Scam and Fraud Prevention,” “Stocks, Bonds, and Mutual Funds,” and “Retirement and Freedom Planning.”
The Stavros Center employs student peer leaders to support operations and bridge the gap between students and financial education. After passing an interview and completing a certification process, these leaders are qualified to run workshops, engage in tabling initiatives, and work one-on-one with learners.
Seminoles talk about rate hikes
FSU finance major Bhishak Sharma told the FSView the rate hike was unsurprising given a half-decade of above-target inflation and high oil prices. While he noted the central bank’s decision will not solve underlying energy cost issues, he still supports the strategy.
More: Higher gas prices force FSU students to rethink spending
“I am still in favor of the decision because the Fed can cut rates out of a slowdown, but letting inflation get out of hand and having investors lose confidence would be much harder to undo,” Sharma said to the FSView.
President of The Finance Society at FSU Owen DeBoer viewed the rate increase as a necessary response to persistent economic pressures.
“This rate hike tells the world the Fed is finally ready to act on the persistent inflation the U.S. has been wrestling with. History tells us that this is likely to be the first of several hikes, since the Fed rarely moves just once,” DeBoer said to the FSView.
Sofia Aristizabal is a Senior Staff Writer for the FSView & Florida Flambeau, the student-run, independent online news service for the FSU and Tallahassee communities. Email our staff at contact@fsview.com.
This article originally appeared on FSU News: How the Fed interest rate increase impacts higher education