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How to Protect Your Credit and Online Data From Fraud—A Year After The Equifax Breach

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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.

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Student Loan Options: What is Refinancing vs. Consolidation?

Got student loans? We’ve got you covered with our Student Loan Smarts blog series. Our expert tips and hacks will help you save money, pay off loans sooner and stress less about student loan debt. Read the other posts in the series here—and get all the info you need to make intelligent decisions about your student loans. And while you’re at it, check out SoFi’s new Student Loan Debt Navigator tool to assess your student loan repayment options.

Student loans have a way of making you feel powerless. But the truth is, you have more control than you think. That’s what our Student Loan Smarts series is all about—helping you understand all of your options so you can make decisions that fit with your financial goals.

One of those options? Choosing to consolidate or refinance student loans. But what is consolidation, what is refinancing, and how do you know which one (if either) is right for you?

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Borrower Questions Answered: SoFi & Student Loan Refinancing

SoFi has been out on the road these past few weeks, visiting universities around the country and spending time with student loan borrowers.  We wanted to learn more about these soon-to-be graduates and their challenges with education debt, so that we can better serve them with our products.

One thing we discovered is that they wanted to learn a lot more about us, too.  Here were some of the most frequently asked questions – and answers – from our spring tour.

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Evaluating a Variable Rate Student Loan

There are a lot of factors to take into account when choosing a student loan – differing interest rates, private vs. public, the pros and cons of working with various lenders.  Among those choices, we at SoFi have found one of the things that trips up borrowers the most is the choice between fixed rate and variable rate (also known as floating rate) loans.

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