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Fixed vs. variable student loan rates: Which is best for you?

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Student sitting on campus steps working on laptop.
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The type of interest rate you get on a student loan is just as important as the rate itself. Fixed interest rates stay the same throughout the loan term, which means you’ll have predictable monthly payments. Variable interest rates, on the other hand, can fluctuate in response to market changes. Your monthly payments could rise and fall accordingly.

The right choice between fixed and variable student loans depends on the type of borrower you are, your future income, what you can reasonably afford to repay and what market conditions are like. Here’s the breakdown of variable versus fixed interest rates for student loans.

What is the difference between fixed and variable student loans?

The main difference between fixed and variable student loans is whether the interest rate can change. However, there are some other areas your rate can affect, including your budget, your student loan payment and how your payment relates to your future income.

Fixed-rate student loans
Variable-rate student loans
Benefits
Interest rate will never change
Monthly payments are consistent
Know exactly how much interest you’ll pay
Lower starting rates
Benefit from market changes (in some cases)
Lower monthly payments if interest rates are low
Drawbacks
Higher starting rates
No benefit if interest rates drop
Rate can rise over time
Monthly payment can change

Fixed-rate student loans

Fixed rates remain constant for the duration of the loan term, which means that your monthly student loan payments will be predictable as you pay off your debt. The only way to change a fixed interest rate is by refinancing the loan.

While fixed rates are typically higher than the lowest advertised variable rates, they provide stability, because the payment won’t change. When you begin the repayment phase for your student loans, you’ll know exactly how much you’ll pay every month and how much interest you’ll pay overall.

Variable-rate student loans

Variable interest rates are tied to market conditions, so your student loan payment could increase or decrease based on an adjustment in your interest rate. Lenders typically tie the loan’s variable rate to a benchmark rate, like the prime rate or the Secured Overnight Financing Rate (SOFR) index, plus a fixed margin.

While you might start off with a lower payment than you would with a fixed-rate loan, there’s a chance that your interest rate — and monthly payment — could rise later on.

When to choose a fixed-rate student loan

Fixed interest rates are good for borrowers who don’t have a lot of wiggle room to account for an adjusting interest rate. All new federal student loans have fixed interest rates, and fixed rates are typically an option with private lenders.

Here are some scenarios where choosing a student loan with a fixed rate can make sense:

  • Your income is low and you need a student loan payment that will never go up.
  • You’re in a low-interest-rate environment and want to lock in a low rate.
  • You’re choosing a long repayment period and will likely encounter market shifts.

When to choose a variable-rate student loan

Variable-rate student loans are a good option if you qualify for the lowest rates available. Private student loans tend to offer variable interest rate options, but federal student loans don’t come with variable rates.

Scenarios where it makes sense to get a variable rate loan include:

  • You plan to pay off your student loan early before rates have a chance to rise too much.
  • You have some wiggle room in your budget in case of rising interest rates.
  • You have good or excellent credit to qualify for the best rates and terms.

What to do before choosing an interest rate

There are several considerations to make before you decide which type of interest rate you choose:

  • Consider the type of student loan: If you’re taking out federal student loans, your only option is a fixed interest rate. In contrast, most private lenders offer both.
  • Think about how long it’ll take to pay off the loan: If you’re a college student who doesn’t plan on making payments until you’re out of school, that’s a long time for your interest rate to fluctuate with a variable rate. That timeline gets even longer when you consider your entire repayment period. But if you’re a parent or a student who plans to start making payments immediately, a shorter repayment term is more conducive to variable rates than a long one.
  • Look at market conditions: It’s impossible to estimate exactly how much more one type of interest rate would cost you than the other. But take a look at current economic conditions and whether interest rates are rising or falling. For example, the Federal Reserve is currently increasing its interest rate to combat inflation, so expect variable interest rates to follow suit.
  • Ask about variable terms: If you’re considering a variable-rate loan, ask the lender how often the rate changes and whether there’s a maximum rate cap.
  • Think about your risk tolerance: You’re the one taking on the risk of rising interest rates if you pick a variable-rate loan. In contrast, it’s the lender who’s taking on the risk with a fixed rate. Think about whether you’d be okay with short-term interest rate fluctuations or if you’d rather have the peace of mind of a fixed rate.

Take your time to think about each of these factors and how they might impact you if you were to choose a variable- or a fixed-rate student loan. And remember that you can change your mind later and refinance your loans if you decide that the other option is better for you.

Written by
Kim Porter
Contributing writer
Kim Porter is a former contributor to Bankrate, a personal finance expert who loves talking budgets, credit cards and student loans. Porter writes for publications such as U.S. News & World Report, Credit Karma and Reviewed.com. When she's not writing or reading, you can usually find her planning a trip or training for her next race.
Edited by
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Reviewed by
Nationally recognized student financial aid expert