Every year, 30-40% of undergraduate students take out student loans to help fund their college education and almost 50% of grad students take out graduate loans. While all federal student loans have fixed interest rates, private student loans can have fixed or variable interest rates.
If you’re wondering, is a student loan variable or fixed rate?, it’s important to understand the difference between the two. 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 term of the loan, 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? Read on to learn about the ways these two student loan options differ.
Key Points
• Federal student loans only offer fixed interest rates, while private student loans may have fixed or variable rates.
• Fixed rates remain constant over the life of the loan, offering predictable monthly payments.
• Variable rates can fluctuate with the market, potentially increasing total repayment cost.
• Generally speaking, borrowers planning to repay quickly may benefit from variable rates, while those seeking stability may prefer fixed rates.
Fixed Rate Student Loans
Federal student loans for undergraduate and graduate students have fixed rates. These 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 at the end of the term.
The only ways a borrower would be able to change the interest rate is to refinance student loans with a private lender or consolidate federal loans through the government.
When you refinance your federal 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.
With a federal Direct Consolidation Loan, 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, when it comes to grad school loans, Direct PLUS Loans for graduate and professional students and parents have a different fixed interest rate than Direct Unsubsidized Loans for graduate and professional students. For loans disbursed between July 1, 2024 and July 1, 2025, Direct Unsubsidized Loans have a rate of 8.08%, while Direct PLUS Loans have a rate of 9.08%.
Undergraduate Direct Subsidized Loans and Unsubsidized Loans disbursed between July 1, 2024 and July 1, 2025 have a fixed interest rate of 6.53%.
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
• Market rates could decrease, meaning you could miss out on potential savings down the line with a fixed rate loan.
Recommended: Student Loan Consolidation vs. Refinancing
Variable Rate (or Floating Rate) Student Loans
As mentioned above, all federal student loans have fixed interest rates. Whether they’re looking for graduate loans or undergraduate loans, borrowers will only have the option to choose a variable rate student loan when borrowing from a private lender.
Variable rate student loans can be 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.
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
• 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. Thus, 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.
Is a Student Loan Variable or Fixed Rate? Choosing the Right Option for You
The final decision depends on your unique situation.
However, be aware that the longer it takes you to pay off the loan, the more opportunity there is for interest rates to rise with variable rate student loans. You can help mitigate your risk by choosing a lender that caps its variable rates, but the rates 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.
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.
Depending on student loan refinancing rates and your financial profile, refinancing might help you spend less in interest over the life of the loan.
You can use a student loan refinancing calculator to crunch the numbers to see if refinancing makes sense for you.
However, refinancing student loans isn’t the right option for everyone. Refinancing federal student loans makes them ineligible for 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
The difference between fixed and variable rate student loans is that a fixed interest rate remains the same throughout the entire life of the loan, while 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.
If you are looking to change your student loan from fixed rate to variable rate or variable to fixed, or you’re simply hoping to get a lower rate to save money on interest, student loan refinancing is one option to explore.
FAQ
Is a student loan variable or fixed rate?
All federal student loans are fixed rate loans. Private student loans may be fixed rate or variable rate.
Are federal student loans fixed or variable?
All federal student loans are fixed rate with interest rates that are set annually by Congress. This means that no matter what type of federal loan you qualify for, your interest rate will not change over the life of the loan.
Can I switch from a variable rate student loan to a fixed rate?
If you have federal student loans, there are two possible ways to switch from a variable rate student loan to a fixed-rate loan: through student loan refinancing with a private lender, in which you replace your old loans with a new loan with new terms, or consolidating your loans through the federal government. However, be aware that refinancing federal student loans makes them ineligible for federal benefits like income-driven repayment and federal deferment.
If you have private student loans, it’s possible to switch from a variable to fixed rate through refinancing.
Which is better for graduate loans — fixed or variable interest rate?
Both fixed and variable rate loans have pros and cons, and only a borrower can decide what’s best for their situation. With a fixed rate loan, you might miss out on some potential savings if market rates decrease. However, fixed rates remain the same over the life of the loan, so your payments won’t fluctuate and you can plan for it accordingly.
The interest rate on variable rate loans can go up and down based on market conditions. In a high interest rate environment you could end up paying more in interest. And if interest rates drop, you could pay less.
What are the risks of a variable rate loan for grad school?
With a variable rate loan for grad school, there is the risk that the interest rate could rise with economic conditions, meaning your payments would be higher. Of course, the rates could also go down. One thing to keep in mind is that if the term of your loan is a long one, the interest rate has more time to fluctuate, which could potentially end up costing you more in interest.
What factors should I consider when choosing fixed vs. variable student loans?
When choosing fixed vs. variable rate student loans, weigh the pros and cons. Fixed rate loans have interest rates that remain the same over the life of the loan so your monthly payments won’t change.
The rates on variable rate loans can fluctuate depending on market conditions. You could end up paying more in a higher interest rate environment — or less if interest rates drop.
SoFi Student Loan Refinance SoFi Loan Products
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