How to Choose Between Variable And Fixed Rate Student Loans

Got student loans? We’ve got you covered with our Student Loan Smarts blog series. Our expert tips and hacks may help you save money, pay off loans sooner, and reduce stress over student loan debt. Read the other posts in the series here—and get all the info you need to make intelligent student loan decisions.

So, you’ve settled on student loan refinancing. You’ve filled out the application, have gotten approved (congrats!), and now you’re faced with a couple of loan options—including the choice between a fixed vs. variable rate student loan. Even if you’re already familiar with both, factors like changing interest rates and your own financial situation have bearing on which type of loan is right for you.

What do you need to know before making a decision? Here’s the scoop on how these two options differ.

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

Variable-rate (or floating-rate) student loans:
Generally have a lower initial rate than fixed rate loans
Are affected by interest rate changes, so your loan’s rate can go up or down on a monthly, quarterly, or annual basis

How to Choose
Your final decision depends on your situation.

If you plan to pay off your loan relatively quickly (lucky you), a variable rate student loan may help you save you money. However, be aware that the longer it takes you to pay off the loan, the more opportunity there is for interest rates to rise. You can mitigate your risk by choosing a lender that caps its variable rates.

Related: How To Evaluate a Variable Rate Loan

If you don’t plan to pay off your student loan quickly, if your future income level is uncertain, or if you’re simply uncomfortable taking on extra risk, consider a fixed rate student loan. In today’s low interest rate environment, fixed rates can be competitive. If you have a high interest rate grad school loan, for example, you could get a lower fixed rate by refinancing.

Whether you choose a fixed rate or variable rate student loan, the main thing to remember is that the rate you got when you first took out your loan doesn’t have to be the rate you’re stuck with for life. Knowing your refinancing options can help put your mind at ease—and hopefully save you some money, to boot.

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 former VP of Community & Member Success. 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.

6 thoughts on “How to Choose Between Variable And Fixed Rate Student Loans

  1. Helpful info. Lucky me I discovered your website by accident, and I am shocked why this
    accident did not took place in advance! I bookmarked it.

  2. Thank you, I have just been looking for info about this subject for ages and yours is the best I’ve discovered so far.
    However, what in regards to the bottom line? Are you certain concerning the

  3. Lynn LaBauve says:

    Why did I receive this on my e-mail. I am 68 years old and don’t have or need a loan. Remove me from you stupid list.

    • Hi Lynn – We’re unable to find you with the email address you provided here. To remove yourself from our email mailing list, please follow the “Unsubscribe” link at the bottom of the email.

  4. If a loan is paid off early, do you still pay the total amount that is calculated based on the length of the loan that is picked? For example on the paper that I received in the mail gives an example of borrowing 10,000 for 5 years and the total amount that would be payed after the 5 years would be 11,421.97, say you are able to pay the loan off after 2 years would you still be paying the total 11,421.97 that was calculated for the 5 year loan term.

  5. I had a student loan from Navient/Sallymae and now it switched to DEP of Education/Nelnet and I was paying faithfully and for some reason my loan is now going down,so I stopped paying because I don’t know if they’re fake and who am I paying to.

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