When you borrow a private student loan, you may get to choose between a fixed or variable interest rate. A fixed-rate student loan offers a predictable monthly payment, with an interest rate that doesn’t change over the life of the loan. A variable-rate student loan, on the other hand, has an interest rate that can fluctuate, increasing or decreasing depending on market conditions.

Generally, fixed-rate student loans are a safer choice. However, a variable rate could offer savings in some situations, particularly if market rates are low and you plan to pay off your loan quickly. When it comes to deciding between a fixed or variable student loan, both types have benefits and drawbacks, so weigh the two options carefully to make the best choice for your finances.

Fixed vs. Variable Student Loans 

A fixed rate stays the same over the life of your student loan, while a variable rate can fluctuate over time. Here are the main pros and cons of these two rate types:

Fixed Rate Variable Rate

Fixed-Interest-Rate Student Loans

A fixed interest rate is somewhat self-explanatory: The rate remains constant for the duration of the loan. It will only change if you refinance or consolidate your loan.

“A fixed-rate student loan is positive because you know what to expect,” says Whitney Barkley-Denney, deputy director of state policy and senior policy counsel for the Center for Responsible Lending, a nonprofit research and advocacy group for consumers.

You can know upfront how much you will ultimately pay in interest on your fixed-rate student loan. Using a student loan calculator such as this one from FinAid.org, enter the interest rate, the starting balance, the minimum payment and the term of your loan to determine the final cost. For example, if your loan has a 5.50% fixed rate, you borrowed $30,000 and the term is 10 years, the total interest will be $9,069.41 if you make a fixed monthly payment of $325.58.

If that amount of interest seems excessive, you could reduce the loan term. Because the interest rate stays steady, calculating how much you could save with a shorter repayment term is easy. With a five-year term and the same fixed rate, the total interest charges would drop to $4,382.14. However, your monthly payment would be larger, at $573.03.

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Federal Student Loans Have Fixed Rates

The primary source of student loans is the U.S. Department of Education, which offers fixed-rate direct loans. According to Federal Student Aid, an office of the Department of Education, the fixed rates for loans disbursed between July 1, 2023, and July 1, 2024, are:

  • 5.50% for both Direct subsidized loans and Direct unsubsidized loans for undergraduates.
  • 7.05% for Direct unsubsidized loans for graduate or professional students.
  • 8.05% for Direct PLUS Loans for parents and graduate or professional students.

Rates for federal student loans adjust annually, but if you already borrowed a loan, your rate won’t change. However, if you take out a new loan every year, each one may have a different interest rate. This can get confusing, and it’s one of the reasons borrowers may decide to consolidate their loans after graduation.

Note that private lenders also offer fixed-rate student loans. While federal loan rates are set by Congress, private lenders usually offer a range of rates, with the lowest ones typically going to borrowers with strong credit, steady income and a low debt-to-income ratio.

Who Can Benefit From a Fixed-Rate Student Loan?

Fixed-rate loans are a better fit than variable-rate loans if you prefer a consistent repayment plan with fixed monthly payments. Additionally, fixed-rate loans can provide more stability when rates are increasing in response to inflation.

“Fixed-rate loans are important in a rising rate environment, since the interest rate won’t increase,” says financial aid expert Mark Kantrowitz.

In this case, you won’t have to rush to pay off your loan before the rate increases. Paying off student loans quickly may not be realistic for borrowers anyway, since these loans tend to be long-term commitments.

Ultimately, a fixed-rate student loan may be the better choice for you if:

  • You want the stability of a constant rate and monthly payment. 
  • Rates seem to be increasing.
  • You expect to be paying off your student loans for a long time to come.

Variable-Interest-Rate Student Loans

As the name suggests, the rate on a variable-rate loan can fluctuate. The federal government does not offer variable-rate student loans; only private lenders offer them.

Lenders don’t randomly set variable interest rates. They’re tied to an index rate such as the Secured Overnight Financing Rate. As this financial index changes, lenders may adjust interest rates on a monthly or quarterly basis.

In general, variable-rate student loans start with lower interest rates than fixed-rate loans, which can be alluring. The risk is that rates can rise in the future, and as a borrower, you have to weigh that risk. If the rate increases, so too will your monthly payment and the total cost of your loan.

Because of the unpredictable nature of variable-rate loans, forecasting exactly how much one will cost you long-term is impossible. Some lenders cap the rate at a certain percentage. When looking into variable-rate loans, ask about caps so you can estimate your maximum possible interest charges.

Who Can Benefit From a Variable-Rate Student Loan?

If you feel confident that you will pay off the loan before the rate increases, a variable-rate loan may be a good choice for you. As long as the variable rate remains lower than what you’d receive with a fixed-rate loan, you could come out ahead financially.

“When interest rates are decreasing, (a variable rate) lets borrowers take advantage of lower interest rates in the future,” says Kantrowitz.

Also, consider your own personality and comfort level when deciding between variable- or fixed-rate terms. A variable rate can be a bit of a gamble, since no one can predict exactly what interest rates will do in the future. Ask yourself if the potential for savings offsets any anxiety you may feel about an uncertain rate and changing monthly payment.

A variable rate may be right for you if:

  • Interest rates are trending downwards. 
  • You expect to pay off your student loan in a short amount of time. 
  • You have enough room in your budget to deal with a fluctuating interest rate and monthly payment.

Refinance to Switch Between Fixed and Variable Rates

If you later change your mind about having a fixed or variable rate for your private loan, you can refinance the loan either with the same lender or a different one to switch the type of rate. A new loan could require an origination fee, though these fees are rare for private student loans.

Although the federal government can’t swap your fixed-rate Direct loan for a variable-rate loan, you can refinance your fixed-rate Direct loan to a variable-rate private student loan. If you do this, however, you will no longer have access to federal student loan benefits.

Refinancing a federal student loan into a private one means forfeiting access to federal repayment plans, forgiveness programs and other benefits. Make sure you’re comfortable with this trade-off before refinancing your federal loans.

If you decide refinancing is right for you, you could reap the benefits of a new interest rate, restructured terms and potential savings on your student debt.

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