Why are private student loan rates still high

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Tenesmus83
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Why are private student loan rates still high

Post by Tenesmus83 »

I was looking to refinance my student loan with online lenders like Sofi. Interest rates have not dropped
despite Fed fund rate dropping to 0. What's going on?
smitcat
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Re: Why are private student loan rates still high

Post by smitcat »

Tenesmus83 wrote: Sat Mar 21, 2020 8:53 am I was looking to refinance my student loan with online lenders like Sofi. Interest rates have not dropped
despite Fed fund rate dropping to 0. What's going on?
[/quote

Why would they have dropped?
jello_nailer
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Re: Why are private student loan rates still high

Post by jello_nailer »

I would guess because they may be considered ridiculously high risk at the moment? Just a WAG.
smitcat
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Re: Why are private student loan rates still high

Post by smitcat »

jello_nailer wrote: Sat Mar 21, 2020 9:48 am I would guess because they may be considered ridiculously high risk at the moment? Just a WAG.
High compared to what? Compared to home mortgages? Compared to credit card rates? Compared to unsecured personal loans? Compared to small SBA loan rates?
Count of Notre Dame
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Re: Why are private student loan rates still high

Post by Count of Notre Dame »

I have a 2.1% rate with First Republic, but that is a 5-year repayment period.
climbhigh
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Re: Why are private student loan rates still high

Post by climbhigh »

Student loans are unsecured. The bank can’t repossess your degree to recoup their loss like they can do with your house if you don’t pay the mortgage. Their ability to make a profit is entirely dependent on your ability to stay employed, which right now is quite uncertain.
MotoTrojan
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Re: Why are private student loan rates still high

Post by MotoTrojan »

smitcat wrote: Sat Mar 21, 2020 9:53 am
jello_nailer wrote: Sat Mar 21, 2020 9:48 am I would guess because they may be considered ridiculously high risk at the moment? Just a WAG.
High compared to what? Compared to home mortgages? Compared to credit card rates? Compared to unsecured personal loans? Compared to small SBA loan rates?
Home mortgages are certainly not high risk right now but all of those unsecured options sure are.
smitcat
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Re: Why are private student loan rates still high

Post by smitcat »

MotoTrojan wrote: Sat Mar 21, 2020 11:54 am
smitcat wrote: Sat Mar 21, 2020 9:53 am
jello_nailer wrote: Sat Mar 21, 2020 9:48 am I would guess because they may be considered ridiculously high risk at the moment? Just a WAG.
High compared to what? Compared to home mortgages? Compared to credit card rates? Compared to unsecured personal loans? Compared to small SBA loan rates?
Home mortgages are certainly not high risk right now but all of those unsecured options sure are.
Yes- - school loans have become very high risk with seemingly associated interest rates.
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White Coat Investor
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Re: Why are private student loan rates still high

Post by White Coat Investor »

Tenesmus83 wrote: Sat Mar 21, 2020 8:53 am I was looking to refinance my student loan with online lenders like Sofi. Interest rates have not dropped
despite Fed fund rate dropping to 0. What's going on?
Rates went up actually. I can't explain it either other than the lenders believe the default rate has gone up due to the likely recession (and/or demise of borrowers, sorry for the morbidity.)
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
MBB_Boy
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Re: Why are private student loan rates still high

Post by MBB_Boy »

Tenesmus83 wrote: Sat Mar 21, 2020 8:53 am I was looking to refinance my student loan with online lenders like Sofi. Interest rates have not dropped
despite Fed fund rate dropping to 0. What's going on?
[/quote

Why would they have dropped?
They have been tracking the Fed rate. They went up as the Fed raised, and went down when the Fed dropped, except the last two emergency cuts.

To OP, is say it's because the one month LIBOR hasn't reset yet. I'd expect an adjustment in a few weeks, it's probably just a lag.

Of course, they all dropped their savings interest rates without a lag haha
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Phineas J. Whoopee
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Re: Why are private student loan rates still high

Post by Phineas J. Whoopee »

The Fed sets one, count it, one, target rate for overnight loans between creditworthy banks. It does not set student loan rates, bond yields, mortgage rates, or anything like that.

It has influence, but not control, and the longer the term the less influence it has.

PJW
jminv
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Re: Why are private student loan rates still high

Post by jminv »

Tenesmus83 wrote: Sat Mar 21, 2020 8:53 am I was looking to refinance my student loan with online lenders like Sofi. Interest rates have not dropped
despite Fed fund rate dropping to 0. What's going on?
The risk on these private unsecured loans has gone way up, not down. So while on the one hand the Fed decreased the fed fund rate, that's counteracted by the fact that the Fed did it because millions of people are losing their jobs and economic output is contracting. If you're a private lender, it's a scary time to be refinancing unsecured debt to people who might be losing their jobs in the near future. You also have to think that some people who are looking to refinance private student loans are doing so because they need to reduce their expenses...because they have lost their job, are worried about losing their job, or losing income.

I applied for a few 0% $0 fee balance transfer credit card deals this week to delay expenses since I can use current income to buy into the market at lower prices, was surprised that the limits were still high and credit easily available. Many others are applying because they are worried about being able to make payments. Same thing with house refinances, I'm getting a huge number of calls over the past 2 days about refinancing when before there were none. They know that people want to cut their expenses while possibly getting cash out of their house for expenses while a home appraisal still comes back with a value that makes it work. I know because I talked to a couple to see what people were doing. They literally told me now's a great time to get money out of your house to deal with any potential future job losses etc while appraisals still come back high. That was the sales point, not low mortgage rates other than dropping rates means taking out cash is cheaper than ever. Taking advantage of dropping mortgage rates seems to be more of a secondary concern.
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