Can my lender just raise my interest rates?

It might be shocking to find your repayment amount increasing all of a sudden and you might find your interest rate has changed. This article discusses whether your lender can change your interest rate and what to do if it happens by mistake.

Updated by Chinmoy Dutta on 25th February 2020

Interest rates vary from time to time. It could be really frustrating for student loan borrowers if the student loan lenders change their interest rates and that too, without any forewarning. But the question arises that are they allowed to do so? The worse part is that as per the revised rate, they continue to deduct the amount from your account.

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Can your lender change the rate?

It might seem shocking to some but, in most cases, your lender is allowed to do so. Borrowers who sign up for variable interest rate student loans are tied to a measuring rate such as the 10-year bond or LIBOR. The change in your rate depends on the contract that you have signed when you borrowed the money from your lender. If you had signed up for variable-rate loans, your lender does not need permission to adjust your rate as you have already permitted them.

Sometimes student loan lenders and servicers make mistakes regarding your interest rates. It is advised to learn in detail about student loan repayment plans which should help you understand the terms and conditions that apply to your student loans.

Watch for mistakes

Over the life of a student loan, lenders and servicers may change. The lender can sell their debt to other companies or they can change the company responsible for collecting your debt. This is an unwanted problem for the borrower as new companies mean new websites, new company policies, etc.

Most of the errors occur when these kinds of changes happen. It is important to check the rate that you are paying because errors might happen and you might end up paying more than you should. Companies cannot change the rate of interest when they do not have the right to do so. It is human for errors to creep in and your lender might make a mistake about the original deal terms. The fixed-rate might be mistaken as variable or the calculations in a variable rate can be altered by mistake.

Error correction and prevention of error is borrower’s responsibility. It is their responsibility to know the following about their loans:

  • Type of interest-rate: fixed or variable

  • For variable-rate, what is the rate that your loan is tied to?

  • If or not there are any caps on your variable rate loan

  • How often is the rate of interest allowed to change?

One of these things could lead to error in rate and you might end up paying extra. It is advised to bring the errors, if any,  to your lender’s attention as soon as you notice them. In this way, you can protect your hard-earned money and not pay the extra erroneous amount.

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It is so that the lenders are allowed to change the rate of interest most of the time. But the change in the rate of interest might be an error by your student loan lender or servicer. It is advised to go through the loan terms and conditions so that you can spot the errors and save your valuable money. You can always ask the lender for a copy of your contract and they are bound to answer any question that you have. You must keep an eye on your lender as no one else can help you with that.