Larisa Elizondo graduated from the University of Michigan debt-free, but getting a law degree required she take out about $160,000 in student loans. She says, she learned quickly that paying off her loans wouldn't be easy because of her salary at the time.
“There was a point where I actually had to get a second job waiting tables at a bar to be able to make everything, because, you know, my student loan payments were $1,150 a month," Elizondo said.
Now, Elizondo feels like she’s finally at a point in her career and making enough to start a family.
"It wasn't really until this last couple of years that I actually felt that I could financially afford to. I mean, to actually have a child the way I want to have a child," Elizondo added.
But, rising interest rates are causing some student loan borrowers anxiety. On Wednesday, the Federal Reserve hiked interest rates just under one percent, the largest increase in nearly 30 years, to tame inflation.
"I've been trying to figure out, should I refinance, do something to refinance the other private loans?" said Elizondo, who still owes about $40,000 in private and $30,000 in federal student loans.
"The majority of Americans have federal student loans. That represents over 80% of the current student loan market, but there is a limitation to how much in federal student loans a borrower can take on at times. So, there are many families who use private student loans to bridge the gap," explained Cody Hounanian, the executive director at the Student Debt Crisis Center. The non-profit offers assistance to borrowers and does work to impact public policy, with the goal of ending the student debt crisis.
The difference between the two types of student loans are that interest rates on federal loans are fixed, but the rates of most private student loans are variable. This means that rising interest rates will likely make private student loans more expensive to pay off.
“When the Fed increases interest rates, private student loan interest rates go up, as well as auto loans and mortgages," Hounanian added. "I should also note people with private student loans and federal student loans likely have other loans in their life. So, when we see interest rates going up, that means their mortgage likely went up, their rent could go up because someone else's mortgage went up added to inflation with food and gas. All of that is taking from their monthly budgets and so the current situation makes paying back your student loans even harder."
Experts at the NerdWallet, a website offering free financial advice, agree. They note that rising interest rates, not directly related to the increase by the Federal Reserve, will also make loans more expensive for those taking out federal student loans for the upcoming school year.
“So new federal student loan borrowers are going to see their own increased interest rate increase beginning July 1...Next year's interest rates are nearly double what they were two years ago," said Anna Helhoski, a student loan expert at NerdWallet. "So if you're someone who needs to take on private student loan debt, you're going to end up paying more over time than you had if you borrowed a year ago or two years ago...Borrowers who also want to refinance their student loans have been able to do so, in the last couple of years, at historic low rates and it looks like the tide is turning on that."
Senator Elizabeth Warren (D-Mass.) is among a group of lawmakers asking President Joe Biden to cancel $50,000 in federal student loan debt for every borrower.
“There's a reason that I support canceling $50,000 of student loan debt. One is that it would wipe out all the debt for about 85% of those who have student loan debt and it would make the debt manageable for many of those who would still owe something. It also would give us a chance to help close the racial-wealth gap in a way where there just aren't many tools to do it. If President Biden canceled $50,000, he would close the black-white wealth gap for those who have student loan debt ," Warren said.
Hounanian explained that Warren's request isn't unrealistic and said it's one of the few issues in which the President can pull a single lever to alleviate federal student loan debt.
"What's unique about the student loan issue is not only does [Biden] have the authority to cancel student debt on his own, the authority is quite simple, it's very black and white. The president can cancel as much student loan debt as possible and there is not much nuance there, other than the fact that he has to direct the Secretary of Education to take such action, " Hounanian continued.
The White House has said the president has already authorized about $25 billion in relief for borrowers in the last 18 months. That relief, however, has been targeted towards helping a portion of borrowers. Advocates, like Warren, are still hopeful he will do more by offering more broad relief.
"Please, Mr. President, today would be a great day to cancel $50,000 of student loan debt," Warren added during our interview.
As for how borrowers can keep down the cost of paying back student loans in the future, Helhoski said there are measures students can take now.
"So new borrowers should always submit the FAFSA first. That's the Free Application for Federal Student Aid which determines if borrowers are eligible for federal student loans. These loans carry more repayment options like income driven repayment and opportunities for forgiveness, compared with private loans. So always start with FAFSA first. Then, if you need a private student loan because you still have a gap to fill, then you're going to want to compare private loans that are offered by interest rates, as well as the repayment options that they carry," Helhoski explained.