The Federal Reserve, America’s central bank, often called the “Fed,” made headlines last week by cutting interest rates for the first time in years. Here’s a breakdown of what happened, why it matters, and how it could affect you.
On September 17th, 2025, the U.S. Federal Reserve lowered its key interest rate by 0.25%, setting a new rate of 4.00-4.25%. This marks the Fed’s first rate cut of the year and signals a shift in priorities after years of battling high inflation, according to Reuters.
The Bureau of Labor Statistics reported that the U.S. added 22,000 jobs in August, well below the projected 75,000. Such numbers cause concern that the economy is moving toward a period of low growth and stagnant, elevated inflation. Fed Chair Jerome Powell told NBC reporters that the “labor market is really cooling off,” prompting such changes to the interest rates. According to the Federal Reserve, the Committee seeks to “achieve maximum employment and inflation at a rate of 2 percent over the longer run.”
Why does this matter? The Fed’s key interest rate is the rate that influences overall lending. While Federal Student loans have interest rates set by Congress, Private Student Loans are often tied to market rates, including the prime rate, which moves with the Fed’s key rate. Lowering the key rate may decrease private loan interest rates, making borrowing cheaper. It could also make refinancing existing private loans cheaper if your lender allows it. Even if your loan is federal, lower rates can help the economy overall.
The rate cut also matters for the economy overall. Cheaper borrowing encourages businesses to invest and hire, which can improve job opportunities for recent graduates. For families, it can make big expenses like tuition, housing, cars, etc., more affordable. Essentially, the Fed’s move is aimed at supporting both economic growth and employment, which helps students prepare for college and enter the workforce.
Overall, the Fed’s decision this past week is good news for all students across the country. The Committee is also meeting again in October and December to discuss whether or not further changes need to be made. Whether or not there will be further cuts this year is unclear, as there are different opinions from members of the Committee, but this marks an important moment for the United States’ economy.
