Choosing Between Variable And Fixed Rate Student Loans

By Kayla McCormack · June 20, 2023 · 6 minute read

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Choosing Between Variable And Fixed Rate Student Loans

Every year, 30-40% of undergraduate students take out student loans to help fund their college education. While all federal student loans have fixed interest rates, private student loans can have fixed or variable interest rates.

Fixed interest rates do not change throughout the loan term. Your monthly payment will remain the same unless you choose to refinance through a private lender and get a new loan with a new rate.

Variable rates, on the other hand, fluctuate with the market. Your rate could go up or down throughout the loan term, making monthly payments less predictable than with fixed interest rates.

What factors are worth considering before deciding between a fixed or variable student loan rate? 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.

When you refinance your federal and/or private student loans, your interest rate is based on the market and your personal financial situation, such as your credit profile and your debt-to-income ratio.

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With a federal student loan consolidation, your interest rate is the average of the loans you are consolidating, rounded up to the nearest one-eighth of a percent. This rate is always fixed.

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.

Undergraduate Direct Subsidized Loans and Unsubsidized Loans disbursed between July 1, 2022 and July 1, 2023 have a fixed interest rate of 4.99%.

Pros of Fixed Rate Student Loans

•   They’re not affected by market rate changes.

•   The monthly payments stay the same throughout the life of the loan.

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.

•   Market rates could decrease, meaning you could miss out on potential savings down the line.

Variable Rate (or Floating Rate) Student Loans

As mentioned above, all federal student loans have fixed interest rates. 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.

Recommended: What to Do When Student Loan Variable Rates Rise

Before choosing a variable rate student loan, it can be a good idea to 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

•   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, the 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, 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, a fixed rate student loan may make more sense.

Recommended: Student Loans Payoff Calculator

Securing a New Interest Rate with Student Loan Refinancing

Whether you originally borrowed a fixed or variable 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 forgiveness benefits and borrower protections like income-driven repayment plans or deferment. If you plan to use these benefits now or in the future, it is not recommended to refinance your student loans.

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 throughout the entire life of the loan, whereas a variable rate fluctuates 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.

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.

If you are looking to change your interest rate from fixed to variable or variable to fixed, or you’re simply hoping to refinance to a lower rate to save money on interest, SoFi offers student loan refinancing with an easy online application, competitive fixed and variable student loan rates, and flexible loan terms.

See if you prequalify for a student loan refinance with SoFi.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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 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.

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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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.


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