Here’s what the stock market crash means for student loans.
Here’s what you need to know.
The stock market has been in freefall since the new year – aAnd it could have a major impact on your student loans. On Monday, the Dow Jones and S&P had fallen nearly 10% from their highs. For example, the Dow fell over 1,100 points – before closing at the top for the day. Despite the intraday rally, volatility is expected to continue and stocks could fall further as investors digest the impact of the Fed’s policy shift and the prospect of higher interest rates. What does this mean for your student loans? Let’s find out.
1. The scholarship is not directly linked to your student loans
The rise and fall of the stock market is not directly related to your student loans. If you want a lower payment, the stock market will not impact your monthly student loan payment. (Here are 7 ways to get a lower student loan repayment). That said, if you are invested in the stock market, a sharp drop could affect the value of your investment portfolio. If you need extra cash to pay off your student loans and need to sell your portfolio, a declining stock market can mean less income available to make student loan payments. Likewise, if you invest in Bitcoin or other cryptocurrencies, the same phenomenon is true. For example, last weekend, Bitcoin hit a price close to 50% off its peak, before recovering on Monday. That said, some student borrowers cannot afford to invest in the stock market. Proponents of large-scale student loan forgiveness argue that many student borrowers cannot afford to invest or save for retirement because their disposable income is used to pay student loans each month. (President Biden was asked about $10,000 student loan forgiveness. Here’s what he said).
2. Higher interest rates mean this for your student loans
Although the stock market has no direct impact on student borrowers, higher interest rates mean that for your student loans. In 2022, the Federal Reserve indicated that it could raise interest rates up to three times (and possibly four times, according to Goldman Sachs) to fight inflation. If the Federal Reserve raises interest rates, the cost of borrowing student loans increases. (How Federal Student Loans Will Change This Year). This helps savers earn more interest in their bank account, but it means student loan debt becomes more expensive to borrow. That said, federal student loans have fixed interest rates, which means that no matter how much the Fed raises interest rates, you will still have the same interest rate for the duration of your current student loans. . (If you have federal student loans issued before July 1, 2006, you may have a variable interest rate student loan. In this case, if interest rates increase, your variable interest rate will increase and your loans students will become more expensive). Private student loan interest rates are set by private lenders, but if interest rates go up, you should expect the variable interest rates on private student loans to go up as well. It is important to note that if the Fed raises interest rates in early 2022, federal borrowers who borrow a federal student loan after July 1, 2022 will likely pay a higher fixed interest rate. (What the Republicans mean for student loans).
What the stock market crash means for student loan forgiveness and student loan relief
Any impending stock market crash could affect prospects for student loan relief and forgiveness. Is student loan forgiveness next? The Biden administration is monitoring the economy (and, to a lesser extent, the stock market) to assess the environment for restarting federal student loan repayments on May 1, 2022. Currently, federal student loan borrowers benefit from close two years of federal government. student loan relief. Any major shock to the economy or the stock market, or both, could change perceptions about the end of student loan relief and the enactment of student loan forgiveness. (Here’s Who Won’t Get Student Loan Forgiveness). Progressives in Congress such as Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) would likely pressure Biden to extend student loan relief and enact the large-scale cancellation of student loans if the economy deteriorated or the stock market crashed further. When the stock market crashed in March 2020, Congress passed the Cares Act – the $2.2 trillion stimulus package – to provide record student loan relief that continues today. (Don’t expect Biden to enact large-scale student loan forgiveness before student loan relief ends.)
Student loans: next steps
It’s hard to predict what will happen next in the stock market, but expect some volatility. If stocks continue to fall — particularly if the Fed raises rates or the economy suffers further — student loans, student loan relief and student loan forgiveness can all be affected. For now, federal student loan relief is ending soon. So, make sure you’re ready to start making student loan payments again.
Here are some smart ways to pay off student loans and save money: