The Federal Reserveâs effect on student loans: What to know
By Ellen Chang
Student loan interest rates could decline if the Fed lowers rates again. (iStock)
The Federal Reserve kept short-term interest rates at nearly zero in 2020 in a response to the coronavirus pandemic and to help stimulate the economy. The low interest rates were intended to help Americans who were struggling because they lost their jobs.
The Federal Reserve generally influences short-term rates. However, the interest rates on both consumer loans and student loans are driven more by levels of long-term rates rather than short-term rates, according to Robert Johnson, a finance professor at Creighton University s Heider College of Business in Omaha, Nebraska.
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The most common pitfalls include mental accounting errors, loss aversion, overconfidence, anchoring, and herd behavior.
Understanding these biases can help you overcome them and make better financial decisions.
Imagine you find $100 on the street. Would you spend it on an expensive meal? Or would you invest it?
The answer lies with behavioral finance, which examines how our brain affects how we manage and invest money.
It may not come as a surprise, but most people would be likely to spend that windfall, even if they re more prudent with their salary. That s to say, they d likely spend the $100 instead of investing it.