How to Choose Between Variable And Fixed Rate Student Loans

For college graduates both new and old, the fun of “summer vacation” is often dampened by thoughts of the student loan debt they’re paying off.  But if college grads take this time to assess whether it’s possible to refinance and consolidate student loans, it could end up easing their debt burden as well as their minds.

There are several factors that can help determine the need for a student loan switch-up.  For example, student loan interest rates may have gone down since you first took out your loans, or your financial situation may have improved, making you eligible for a lower rate.  If you find yourself in either of these categories, you may qualify to refinance student loans – and you may be presented with the option to refinance into a variable rate student loan.

So what’s the difference between variable (sometimes called “floating”) and fixed rate student loans, and how do you know which one is right for you?  Here’s the quick breakdown:

Fixed rate student loans:

*Generally have a higher rate than variable rate student loans
*Are not affected by interest rate changes
*Charge the same monthly rate over the life of the loan


Variable rate student loans:

*Generally have a lower initial rate than fixed rate student loans
*Are affected by interest rate changes
*May charge a different rate on a monthly, quarterly, or annual basis based on interest rate changes


Which one is right for you?  It depends on your situation.  If you plan to pay off your student loan debt relatively quickly, a variable rate student loan can be a cost-saving option.  However, it’s important to be aware that the longer it takes you to pay off the loan, the more opportunity there is for interest rates to rise – taking your student loan’s rate with it.  You can mitigate your risk by looking for a lender that caps its variable rates at a certain number.

Whether you choose a fixed or variable rate product, the bottom line is that the rate you were given when you first took out your loan may not be the rate you’re stuck with for life.  Knowing your student loan refinance options can help put your mind at ease – and hopefully make for a more relaxing and enjoyable summer.


Editor’s Note: This is an updated version of a post we originally published in September 2013. We welcome new comments and questions below.

ABOUT Dan Macklin Twitter:@macklindan Dan Macklin is a co-founder of SoFi and VP of Community & Member Success with responsibility for maximizing the overall experience for SoFi’s growing community of members. Dan holds an M.S., Management degree from the Stanford Graduate School of Business where he was a Sloan Fellow. He also holds a B.A. in Business Economics from University of Durham in England.

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