Beginning the first week of January, the era of student loan leniency officially ends.  The Trump administration will resume administrative wage garnishment for defaulted federal student loan borrowers, marking the first time these “paycheck raids” have occurred since the pandemic-era pause began nearly six years ago. Wage Garnishment Starting on Jan. 7, 2026, the Department of Education will dispatch the first wave of notices to roughly 1,000 defaulted borrowers. The Trump administration plans to scal ...

Core Insights - The Federal Reserve's monetary policy significantly influences student loan interest rates, particularly through its adjustments to the federal funds rate, which affects borrowing costs across the economy [3][4][5]. Federal Student Loan Interest Rates - Federal student loan interest rates are set by Congress based on the 10-year Treasury note, with a fixed margin added each year. The 10-year Treasury yield is influenced by investor demand rather than the Fed's rate [6][10]. - For the 2025-26 school year, the fixed interest rates for federal student loans are as follows: Direct Subsidized and Unsubsidized Loans at 6.39%, Direct Unsubsidized Loans for graduate students at 7.94%, and Direct PLUS loans at 8.94% [17]. Private Student Loan Interest Rates - Private student loans are influenced directly by the prime rate, which moves in tandem with the Federal Reserve's rate decisions. As a result, when the Fed raises rates, private loan rates typically increase [8][9]. - Interest rates among private lenders can vary widely, with typical fixed rates ranging from 2.89% to 17.99% as of October 2025, depending on the lender and the borrower's creditworthiness [13]. Impact of Credit Scores and Co-signers - Federal student loans do not require a minimum credit score or co-signer, while private loans often necessitate a good credit score (mid-600s or higher) for approval. Higher credit scores lead to better loan terms [14][15]. Refinancing Considerations - Refinancing student loans can potentially lower interest rates or consolidate multiple loans into one payment. However, borrowers with federal loans should be cautious, as refinancing with a private lender results in the loss of federal benefits [19][20]. Conclusion - The Federal Reserve plays a crucial role in shaping student loan interest rates, with federal loans offering fixed rates that remain stable for borrowers, while private loans are more susceptible to market fluctuations [22][23].