Choosing Between Variable And Fixed Rate Student Loans

So, you’ve realized that you need to take out student loans to help finance your education. Or maybe you’ve settled on student loan refinancing as a strategy to repay existing student loans.

Either way in this hypothetical, you’ve filled out the application, gotten approved (congrats!), and now you’re faced with loan options—including the choice between a fixed vs. variable rate.

Even if you’re already familiar with both, factors like changing interest rates and personal financial situations may have a bearing on which type of loan is the right choice.

What factors are worth considering before deciding between a fixed- or variable-rate student loan? Here’s the scoop on ways these two student loan options differ:

Fixed-Rate Student Loans

Fixed-rate student loans have a locked in interest rate for the entire loan term. This means that the interest rate on the loan when it is originally borrowed will be the same rate you have at the end of the term. The only way a borrower would be able to change this interest rate is through refinancing the loan with a private lender or, for federal student loans, consolidating them through the government.

Fixed-rate student loans are usually considered the safer option as there is no chance the interest rate will rise. All federal student loans (since July 1, 2006) have fixed interest rates that are set by Congress each year, so no matter which federal loan you qualify for, your interest rate will not change over the life of the loan.

Each type of federal loan will have its own fixed interest rate. For example, Direct PLUS Loans have a different fixed interest rate than Direct Unsubsidized Loans.

You can check the current federal loan fixed interest rates here . Private student loans, on the other hand, can have either fixed or variable rates.

Pros of Fixed-Rate Student Loans

•  They’re not affected by interest rate changes.

•  The monthly payments stay the same throughout the life of the loan, unless the borrower chooses to increase what they pay.

Cons of Fixed-Rate Student Loans

•  Fixed-rate loans may have a higher starting interest rate than variable rate loans. This could mean missing out on initial savings if variable rates are lower than the fixed interest rate.

Variable-Rate (or Floating-Rate) Student Loans

As mentioned above, all federal student loans have fixed interest rates. So as of this writing, borrowers will only have the option to choose a variable rate student loan when borrowing from a private lender.

While variable rate student loans typically have a lower starting interest rate, they are also riskier than fixed-interest loans. This is because the interest rate on a variable-rate student loan can change (increase or decrease) throughout the life of the loan based on how the market performs at any given time.

While it can be a good thing if the interest rate goes lower than your original rate, there is also a possibility that the interest rate can increase. How do lenders choose the rates? Many private student loan lenders base the interest rates on interest rate indices like the London Interbank Offered Rate (LIBOR).

So when a variable-rate loan’s interest rates are pegged to LIBOR, and the LIBOR rates go up, the interest rate on the variable-rate loan will generally follow.

Before choosing a variable-rate loan, it can be a good idea to also ask your lender how often your interest rate can change on their end. Each lender has their own way of adjusting rates (some do it every month, where others will do it every few months).

You can also ask if there is a cap on the rate—some lenders will implement a cap such that a variable-rate can’t exceed a certain percentage.

Pros of Variable Rate Loans

•  Generally have a lower initial interest rate than fixed-rate loans.

•  They can be a good option for borrowers who qualify for a low-interest rate and are on track to pay off their student loans quickly.

•  Borrowers could potentially save money if the interest rate drops.

Cons of Variable 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.

•  The monthly payment may not remain stable, and may increase or decrease as the interest rate changes.

•  For those paying their loan off on a fairly long timeline, their interest rate has more time to go up, which could cost the borrower more in interest over the life of the loan.

Choosing a Student Loan That Works for You

The final decision depends on your unique situation, of course. If you plan to pay off your loan relatively quickly (lucky you), a variable-rate student loan may help you spend less in interest.

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 help mitigate your risk by choosing a lender that caps its variable rates, but they will still fluctuate.

For borrowers who anticipate repaying student loans over a longer time period, or those whose future income level is uncertain, or those who are simply uncomfortable taking on extra risk, a fixed rate student loan may make more sense.

Securing a New Interest Rate with Student Loan Refinancing

Whether you originally borrowed a fixed rate or variable rate student loan, the main thing to remember is that the rate assigned when the loan was initially borrowed doesn’t have to be the rate for the entire life of the loan. Knowing your refinancing options can help put your mind at ease—and hopefully help you spend less in interest over the life of the loan.

While refinancing student loans can potentially help borrowers secure a lower interest rate, it’s not always the right option. Refinancing a federal student loan eliminates them from federal benefits and borrower protections like income-driven repayment plans or deferment.

The Takeaway

When thinking of the difference between a fixed and variable rate student loan, it helps that the names are descriptive. A fixed interest rate remains the same for the entire life of the loan.

A variable interest rate may fluctuate with market changes over time. All federal student loans have fixed interest rates that are set annually by Congress. Private student loans may be either fixed or variable.

Looking to understand more about student loans? Check out our student loan help center and find calculators and resources that can help you better understand your student debt.

Student loans can get complicated, but SoFi is here to help. From helping you finance your education to helping you manage your existing student loan debt, we’ve got you covered.

Potential borrowers can check the rates and terms they prequalify for in just a few minutes.


We’ve Got You Covered

Need to pay
for school?

Learn more →

Already have
student loans?

Learn more →



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SLR16103

Read more
man on his laptop

Student Loan Deferment vs Forbearance: What’s The Difference?

If you’re struggling to keep up with student loan payments, rest assured you are not alone. In fact, 17% of those with education-related debt were behind on payments in 2019, according to the Federal Reserve .

There are many reasons why you may be having difficulty with your loans. Some students may struggle to find a job after graduation, or some may not earn as much as they anticipated right out of the gate.

When monthly student loan payments become insurmountable, the worst thing to do is nothing at all. When a borrower stops paying their student loans, they may go into default. This has the potential to devastate an individual’s credit score.

In default, borrowers could also face relentless collection agencies or could even have their wages garnished. Plus in most cases, student loans can’t be discharged even if the borrower files for bankruptcy.

But take heart: Those borrowers with federal student loans may have options for pausing or temporarily reducing their monthly payments, if they’ve found themselves in a tough financial spot. Namely, borrowers can apply for either student loan deferment or forbearance from the federal government in order to avoid default.

It can be tough to figure out the difference between these two programs and which is best for your situation. Here’s a breakdown of the differences between deferment and forbearance:

What Is The Difference Between Deferment and Forbearance?

Let’s start with the similarities: Both deferment and forbearance allow a borrower to temporarily lower or stop making payments on their federal student loans for a defined period of time, if they qualify.

In both cases, the borrower needs to contact their loan servicer, submit a request, and provide the documentation requested by the loan service.

The main difference between the two is that, while in deferment, borrowers are not required to pay the interest that accrues if they have a qualifying loan .

Specifically, interest is not owed on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans.

Interest payments are still required on Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans, FFEL Plus Loans, and unsubsidized portions of Direct Consolidation Loans and FFEL Consolidation Loans.

With federal student loan forbearance, borrowers are always responsible for paying the interest that accrues, regardless of what kinds of federal loans you have.

You can either pay the interest as it adds up, during the forbearance period, or you can have it capitalized (added to the principal) at the end, which could increase the total amount you repay.

Who Is Eligible for Deferment?

Overall, deferment is tailored to people who are having economic difficulties because, for example, they’re in school at least half-time, in the military, in another eligible post-graduate role, or can’t find a full-time job.

Here are more details: Federal student loan borrowers may qualify for deferment if they are enrolled at least half-time at an eligible college or vocational school, and if they’re in an approved graduate program, for six months after enrollment ends.

Individuals may also be eligible if they are in an approved graduate fellowship, in an approved rehabilitation training program for disabled people, on active duty with the military (and for 13 months afterward), or are serving in the Peace Corps.

Related: Examining How Student Loan Deferment Works

Finally, unemployed individuals are also able to apply for deferment. In the case of unemployment and the Peace Corps, you may be granted deferment for a maximum of three years. Review all the possible eligibility scenarios at the Department of Education’s webpage about deferment .

Who Is Eligible for Forbearance?

There are two kinds of forbearance : mandatory and general.

Mandatory Forbearance

Loan servicers are required to grant mandatory forbearance to qualifying borrowers. Depending on the type of federal student loan, borrowers may be eligible if they are in a medical or dental internship or residency, serving in AmeriCorps or the National Guard, or working as a teacher and performing a teaching service that qualifies for teacher loan forgiveness.

Borrowers may also qualify if their monthly student loan payment is at least 20% of their gross monthly income, for up to three years, again depending on the type of loan you have. Note: Mandatory forbearance is granted for up to a year at a time. After that, borrowers can request it again.

General Forbearance

With general forbearance, it’s up to the loan servicer to decide whether to grant it, only certain federal student loans are eligible (Direct Loans, FFEL, and Perkins Loans), and like mandatory forbearance, general forbearance can only be granted for 12 months at a time. There is a three-year cumulative limit on general forbearances.

Borrowers can apply for a general forbearance if they’re unable to make loan payments because of financial hardship, medical bills, or changes in their job (such as reduced pay or unemployment). If there are other reasons they’re unable to pay, it’s also possible to make that case to the loan servicer, but the decision will be theirs to make. Check out all the possible eligibility scenarios at the Department of Education’s webpage about forbearance .

Forbearance vs Deferment for Student Loans: Which Option to Choose?

If your federal student loan type and circumstances allow you to, getting a deferment can be a no-brainer since it’ll allow you to get a break on interest during the deferment period. If you’ve already exhausted the maximum time for a deferment, or your situation doesn’t fit the narrow eligibility criteria, then it could make sense to apply for a forbearance.

If your ability to afford your loan payments is unlikely to change anytime soon, or if you have private loans or federal loans that don’t qualify for a deferment or forbearance program, you may want to consider other solutions, such as an income-driven repayment plan or student loan refinancing.

How Does an Income-Driven Repayment Plan Work?

Another way to potentially reduce your federal student loan payment is to apply for an income-driven repayment plan. The government offers four different income-driven plans that tie the borrower’s monthly payment to their discretionary income, while considering other factors including family size.

The plan a borrower qualifies for depends on the type of loan they have and when it was borrowed. Depending on the plan, your monthly payment will generally be reduced to between 10% and 20% of your discretionary income. If you make the required qualifying payments every month, your balance can be forgiven in 20 or 25 years.

There are lots of specific qualifying factors and important details to consider for this repayment option. For more information, The Department of Education offers resources for borrowers to review.

How Can Student Loan Refinancing Help?

For some borrowers, refinancing student loans can be an option that helps them reduce their monthly payment or interest rate. Refinancing involves taking out a new loan from a private lender and using it to pay off existing federal or private loans, effectively combining multiple loans into one.

The new loan will have a new term and interest rate, which has the potential to help borrowers save on interest or the amount they pay over the life of the loan. Borrowers with a solid credit score and employment history (among other positive financial indicators) are especially likely to be able to qualify for favorable terms.

With SoFi, it’s possible to refinance loans without paying any hidden fees or penalties at either a fixed or variable interest rate.

Keep in mind that if you refinance federal loans, you will no longer qualify for the federal benefits we discussed in this post, including deferment, forbearance, or income-driven repayment programs.

However, some private lenders do offer temporary relief if you experience financial hardship. Rather than stopgaps that can require you to re-apply year after year, refinancing can help you gain a long-term plan for getting your payments under control.

The Takeaway

Deferment and forbearance are both options that allow borrowers to temporarily pause payments on their federal student loans.

Deferment differs from forbearance in that some borrowers may not be required to pay interest that accrues during deferment, depending on the type of loan they have. With forbearance, borrowers are generally required to cover interest that accrues while the loan is in forbearance.

Borrowers who anticipate having trouble making monthly federal student loan payments in the long-term might consider applying for income-driven repayment plans, which ties monthly payments to the borrower’s income level.

Other individuals may consider refinancing to secure a more competitive interest rate or a lower monthly payment. Note that a lower monthly payment generally extends the repayment terms and is more expensive in the long run.

Refinancing federal student loans eliminates them from borrower protections, including deferment, forbearance, and income-driven repayment plans, so it won’t make sense for borrowers with federal loans who are taking advantage of those programs.

Learn more about refinancing with SoFi. Potential borrowers can prequalify in a few minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOSL18184

Read more
hand shadow with 10 dollar bill

What is a Federal Perkins Loan?

Perkins Loans were designed for undergraduate and graduate students who demonstrated exceptional financial need. Although the program has ended, 1.6 million borrowers still owe $4.7 billion in Perkins Loans as of mid-2021.

The loans were meant to make going to school and repaying student loans easier for students whose financial situation may have prevented them from going to school at all.

The program expired on Sept. 30, 2017. If you were awarded a Perkins Loan before then, you still have to pay your loan back, in almost all cases.

Benefits of Federal Perkins Loans

Perkins Loans Are Subsidized Loans

With federal subsidized student loans like Perkins Loans, the government pays the interest on the loan while you’re in school, during your grace period, and if you need to defer your loan payments for an eligible reason.

That creates significant savings compared with federal unsubsidized student loans, when interest may continue to grow even if you are not currently required to make payments on the loan.

The benefit still exists for students who took out Perkins Loans.

Additionally, Federal Perkins Loans had no origination fee. In contrast, Direct Loans currently have an origination fee of 1.057%, and Direct PLUS Loans for parents and grad students have a fee of 4.228% until Oct. 1, 2021. (The percentages change on Oct. 1 every year.)

Perkins Loan Interest Rate

While other federal student loan rates are tied to the 10-year Treasury note, the Perkins Loan rate was fixed at 5%—which used to be lower than some other loan types.

Currently, the rate for Direct Loans disbursed from July 1, 2021, through June 30, 2022, is 3.73% for undergraduate students and 5.28% for graduate or professional students. Direct PLUS Loans for graduate students or parents carry a rate of 6.28%.

Extended Grace Period

Another benefit of Perkins student loans is their extended grace period.

Most federal student loans have a grace period of six months after graduation to begin payments. Perkins Loans give an extra three months, so borrowers don’t have to start repaying a Perkins Loan for nine months after they graduate, leave school, or drop below half-time enrollment.

That said, any borrower who is eager to start repaying student loans doesn’t have to wait until a grace period is over to begin.

Perkins Loan Forgiveness Programs

If you have Perkins Loans, you may also qualify for certain forgiveness programs, depending on your employment or volunteer status.

If you work as a Peace Corps volunteer, firefighter, law enforcement officer, nurse, librarian with a master’s degree at a Title I school, public defender, teacher who meets specific criteria, among several other jobs, you could be eligible to have all or part of your Perkins Loan forgiven.

How Much Could You Borrow?

If you were eligible for a Perkins Loan, you most likely were only able to take a portion of your federal loans out as Perkins Loans. The amount you were able to borrow in Perkins Loans was determined by your personal financial situation.

For dependent undergraduate students whose parents are eligible for Direct PLUS Loans, the aggregate federal student loan limit is $31,000, with no more than $23,000 of that for subsidized loans. Undergrads deemed independent can have an aggregate of $57,500 in federal student loans, with no more than $23,000 in subsidized loans.

The aggregate federal loan limit for graduate or professional students is $138,500, which includes federal loans received for undergraduate studies.

Refinancing Your Student Loans

You may now be seeking a lower interest rate for your outstanding student loan balance.

Since graduating from college and getting a job, you may be making significantly more money and have established good credit. If that’s the case, refinancing your federal and/or private loans may be a good choice.

Even though Perkins Loans have good repayment options and a steady, reasonably low interest rate, not all student loans enjoy the same perks.

Before you refinance, which means paying off any or all current loans with a new, private loan, preferably with a lower interest rate, it is important to review the benefits of your current loans. Refinancing would eliminate federal benefits like deferment and income-driven repayment plans.

Depending on your credit history and earning potential, you may be able to qualify for lower monthly payments or a lower interest rate, which could potentially reduce the amount of money you pay in interest over the life of the loan.

The Takeaway

Federal Perkins Loans, for students of exceptional need, came with benefits and a fixed interest rate that was relatively low at the time. Billions are still owed on Perkins Loans, and a borrower may want to weigh the merits of seeking a lower rate.

SoFi is a leader in the student loan space, offering refinancing of both federal and private student loans with a fixed or variable rate and no application or origination fees.

See your interest rate in just a few minutes. No strings attached.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SLR18190

Read more
How Rising Inflation Affects Student Loan Interest Rates

How Rising Inflation Affects Student Loan Interest Rates

For people with variable-rate student loans, or any kind of debt, it can pay to watch inflation.

Inflation has been a growing concern for the past year, even as interest rates have remained low. COVID-19 relief measures worth trillions served as a lifeline for many and helped drive major stock indices to record highs. The broader economy began to recover from the pandemic.

But production snags and widespread shortages are driving prices higher for many items, stoking the risk of rampant inflation. Some economists warned that the government largesse also could spark inflation that would outpace wage gains.

When the economy “runs hot,” the Federal Reserve typically raises interest rates to cool down the economy and maintain stability.

When might a cooldown begin? As of now, the St. Louis Fed president has forecast an initial rate increase in 2022.

What Exactly Is Inflation?

Inflation—the rising cost of everyday items—is an important economic factor to everyone from investors to policymakers to borrowers. The reason it matters to borrowers is that inflation can lead to higher interest rates on every kind of debt, including student loans.

Put simply, inflation means that the price of bread will be higher tomorrow than it is today. So lenders tend to increase interest rates when they lend money, given that borrowers will be paying the money back when those dollars will buy less. That’s one reason inflation and many interest rates have typically risen or fallen in step with each other.

The Federal Reserve is another reason. The country’s central bank plays a major role in managing the economy, especially with factors like interest rates and inflation. It recently raised its projections for inflation this year. And, to keep a lid on inflation, it recently moved forward the date when it will likely raise the interest rates at which it lends money to banks.

What Does Inflation Mean for Student Loans?

To someone with student loan debt, inflation can be good news . Inflation drives up the price of everything, including wages. As a result, some borrowers are paying back certain fixed-rate loans, for example, with dollars that have less value than the ones they borrowed.

There are exceptions. If a borrower took out a variable-rate private student loan, it’s likely that inflation will lead to higher interest rates, which will translate into higher interest rates that the borrower has to pay. But if the borrower has a fixed-rate private student loan and her salary keeps up with the pace of inflation, then inflation can be helpful.

So, with the specter of inflation looming over the economy, it’s worth checking to see if your private student loan has a fixed or variable rate.

As a quick primer, fixed-rate loans have the same interest rate from when borrowers take out the loan to when they pay it off. Variable-rate loans change the interest they charge, which is influenced by Federal Reserve rate changes.

Variable-rate loans, also sometimes called “floating rate” loans, usually start out with lower interest rates than fixed-rate loans.

All federal student loans have a fixed rate; the rate for new loans is determined annually. The only variable-rate student loans are those offered by banks and other private lenders, though they also usually offer fixed-rate loans.

When Does Refinancing Make Sense?

Even with inflation on the horizon, interest rates have been at historic lows for more than a year. That has borrowers of all stripes refinancing their debts. That may mean getting a lower interest rate on their home mortgage, or bundling their credit card debt and paying it off with a single, lower-interest personal loan.

People with student loans may also be able to refinance their debt at a lower rate and change the length of the loan.

The first step is to check the interest rates on your existing student loans against the rates offered by other lenders. If they offer a better rate, then it may be possible to pay off that student loan debt faster or reduce your monthly payments.

Some lenders refinance both federal and private student loans. If you choose to refinance federal student loans with a private lender, realize that you will give up federal benefits and protections like income-driven repayment plans and loan forgiveness options.

Timing is everything. If the Fed acts sooner than expected to prevent the economy from overheating, rates could climb. Especially if you have private student loans with variable rates, refinancing could save you significant money and help you pay off your loans faster. (To reiterate, fixed-rate federal student loans are not affected by Fed rate changes.)

A student loan refinancing calculator could come in handy as you weigh your options.

The Takeaway

The Fed expects to raise interest rates sooner than anticipated as inflation fears rise. What does that mean for private student loan holders? They may want to refinance some or all of their loans while rates remain low.

SoFi refinances federal student loans, parent PLUS loans, and private student loans with no origination or prepayment fees.

You’re probably aware of the payment and interest pause on most federal student loans through September. Here’s an offer to think about:

If you qualify to refinance your federal student loans with SoFi, you can pay 0% interest through Sept. 20, 2021, and make no payments until October.

Find your rate on a student loan refinance today.

Photo credit: iStock/MicroStockHub


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOSL0621023

Read more
man on laptop

When Do Student Loan Rates Increase?

Student loan rate increases are a daunting possibility for students planning on borrowing federal student loans each year. But unfortunately, student loan interest increases can be par for the course.

Federal student loan interest rates for the 2021-2022 school year have increased slightly from the 2020-2021 rates. If you’re worried about an upcoming student loan rate increase, and wondering if the federal government might be raising student loan interest rates in the coming years, read on for more information.

There’s no way to know for sure what will happen with federal student loan interest rates in the long term, but it could help to know the landscape, understand how the rates have gone up in the past, and look at what’s being proposed for the future.

The more you know, the more prepared you can be if you need to borrow another student loan.

Student Loan Interest Rates Change Annually

Under a law adopted by Congress in 1993, the federal government pegged federal student loan interest rates to the longer-term US Treasury rates, and those interest rates are adjusted annually for new federal student loans.

Each year, the new rates take effect on July 1 and apply to federal student loans taken out for the following academic year. Rates have increased from the 2017–2018 to the 2018–2019 school years, but have decreased for 2019–2020 and the 2020-2021 school years.

Student Loan Rates for the 2021–2022 School Year

The interest rates on Direct Subsidized and Unsubsidized Student Loans for undergraduates are 3.73% for any new loans made on or after July 1, 2021, and before July 1, 2022.

Student loan interest rates also increased for Graduate or Professional Direct Unsubsidized Student Loans—up to 5.28% (up from 4.30%). Rates on Direct PLUS Loans, which are available to parents and graduate students, increased to 6.28% (up from 5.30%.

In an effort to keep the interest rates on federal student loans from skyrocketing, Congress has set limits on how high-interest rates can go. Undergraduate loans are capped at 8.25%, graduate loans can’t go higher than 9.5%, and the limit on parental loans is capped at 10.5%.

If Your Loan Has a Variable Interest Rate, a Hike Could Be in the Cards

If you take out a federal student loan, the loan’s interest rate is fixed. This means the interest rate stays the same over the life of the loan.

When applying for a private student loan or refinancing an existing loan, borrowers can typically choose between a fixed and variable interest rate. The interest rate on a variable loan could fluctuate depending on market volatility.

When you take out a private student loan, the original rate depends on your credit score, employment history, and current income level—among other factors, which vary by lender.

If your loan has a variable rate, the rate fluctuates as the economy changes. You might have mixed feelings when rates alter. Generally, rates tend to decrease when the economy takes a hit, and they tend to increase as the economy strengthens.

How do you know if a rate hike is in the cards? We can never be 100% sure, but it might help to look at trends in the market. You could consider looking at the London Interbank Offered Rate (LIBOR) , an interest rate index that is updated daily and shows how rates change along with the economy.

If you look at the LIBOR index in 2019, you can see that variable rates were steadily increasing from 2014 to January 2019, but for the most part, they’ve been decreasing ever since.

Tuition and Fees Are Not Tax Deductible

The 2018 Tax Cuts and Jobs Act did not include an extension of the Tuition and Fees Deduction. In the past, taxpayers could use this tax provision to reduce their taxable income by up to $4,000 annually. The IRS currently has no plans to make tuition and fees deductible again in the future.

The Student Loan Interest Deduction May Be Eliminated

The 2018 Tax Cuts and Jobs Act originally proposed eliminating the student loan interest deduction, which allows individuals to deduct up to $2,500 annually on the interest paid on a student loan. Ultimately, this deduction wasn’t eliminated and is still available, but it’s an issue to be aware of.

The Takeaway

One way to navigate these changes is to refinance your student loans with SoFi, allowing you to choose a monthly payment plan and loan term that works for you. Certain private lenders only refinance private student loans, but SoFi gives you the option to refinance both private and federal loans.

Refinancing student loans involves taking out a brand new loan with a new interest rate. By refinancing, borrowers have the opportunity to make only one monthly payment instead of balancing multiple payments.

Individuals whose financial situation has improved since originally borrowing the loan(s) may qualify for a lower interest rate.

Those currently enrolled in an income-driven repayment plan or who are working toward loan forgiveness for federal loans, may find that refinancing is not the best option.

When federal student loans are refinanced, they are no longer eligible for federal borrower protections.

But someone worried about rising variable rates on private student loans may be able to lock in a competitive interest rate by refinancing.

When you refinance with SoFi, there are no origination fees or prepayment penalties. Take a look at SoFi’s student loan refinancing calculator to get an idea of what a new loan could look like for you.

If you’re looking to potentially get a better term or a lower interest rate, consider refinancing with SoFi. You can check your rate in under two minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOSL18110

Read more
TLS 1.2 Encrypted
Equal Housing Lender