“I wouldn’t be losing a lot of sleep over what the Fed is going to be doing Wednesday," Vedder said. "But then again, I don’t have student loans.”
A meeting in Washington, D.C. this week could result in higher student loan bills down the road for Ohio University students.
The Federal Open Market Committee will meet this week to decide whether now is the time to begin raising interest rates, which could put a squeeze on the job market for recent college graduates and increase interest rates on student loans, according to Richard Vedder, distinguished professor emeritus of economics at Ohio University.
A vote to raise rates in Thursday’s meeting, though “not likely to be dramatic in the short run,” according to Vedder, could result in students paying a few hundred dollars more in interest per year on their loans.
Vedder said that’s because some student loan rates are tied to federal bond rates, which would drift upward if the board approves a rate hike this week.
For example, someone with around $20,000 in student debt could end up paying $16 or $17 per month more in interest in the long-term, Vedder said.
“I wouldn’t be losing a lot of sleep over what the Fed is going to be doing Wednesday,” Vedder said. “But then again, I don’t have student loans.”
Last year, the U.S. Department of Education released data showing that OU graduates had the second-highest three-year loan default rates among large public universities nationwide.
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Rising rates could also make it tougher for recent graduates to find jobs, though Vedder emphasized he doesn’t think this is likely.
“The conventional wisdom is (raising rates) will have a negative effect on the economy,” Vedder said. “This could slow down or end the sort of moderate recovery we’ve seen.”
Vedder noted that a rate hike might not occur at this week’s meeting, saying it is a “sort of 50-50” chance. Economists are split on the issue.
Regardless of what happens this week, Fed Chair Janet Yellen has said that rates will rise by the end of 2015.
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