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The interest rate on a loan is a percentage of the loan principal charged by the lender as part of your overall loan cost — essentially, it’s a fee you pay to borrow money.
When you take out a student loan, you might have a choice between:
- A fixed interest rate, which will stay the same throughout the life of the loan
- A variable interest rate, which can fluctuate depending on the market conditions
Here’s how to decide between a fixed or variable student loan interest rate:
- Fixed vs. variable student loan interest rates
- When to choose a fixed-rate student loan
- When to choose a variable-rate student loan
- How do student loan interest rates work?
- How to get the lowest student loan rate
- How to calculate student loan interest
Fixed vs. variable student loan interest rates
If you’re comparing a fixed vs. variable interest rate on a student loan, it’s important to consider your overall repayment strategy to choose the most optimal rate for your needs. Here are a few important points about both rate types to keep in mind:
|Fixed-interest rate||Variable-interest rate|
|Interest rate||Fixed for life||May go up or down|
|Monthly payment||Doesn't change|
(except in IDR)
|Can go up or down with rate|
|Loan type||Federal or private student loans||Private student loans|
|Pros||Same rate and monthly payment for life of the loan||
|Cons||Higher rate than a variable-rate loan with same repayment term||
Learn More: How Do Federal and Private Student Loans Work?
Interest rates for federal and private student loans
Here are the interest rates you can generally expect for federal and private student loans:
|Interest rates||Rate type|
|Federal Direct Subsidized Loans||3.73%*||Fixed only|
|Federal Direct Unsubsidized Loans||Fixed only|
|Federal Direct PLUS Loans||6.28%*||Fixed only|
|Private student loans|
(with Credible partner lenders)
|Fixed or variable|
|*Federal student loan rates for the 2021-22 academic year.|
Check Out: How to Pay for College With No Money Saved
When to choose a fixed-rate student loan
In some cases, a fixed-rate student loan could be the right option for your finances. Here are a few reasons why you might choose a fixed interest rate:
- Predictable monthly payment: With a fixed interest rate, your monthly payment will stay the same throughout the life of the loan.
- Fixed repayment cost: Because a fixed interest rate won’t ever change, you’ll know exactly how much the loan will cost you.
- Could be less expensive for longer repayment periods: If you expect to repay your loan over several years, a fixed interest rate will likely be less expensive than a variable interest rate that could fluctuate over time.
When you might not want a fixed-rate student loan
While the predictability of fixed-rate student loans is appealing for many borrowers, there are also some potential drawbacks to keep in mind:
- Higher initial interest rate: Fixed interest rates generally start off higher compared to variable rates for the same repayment term, which means your payments will be more.
- Rate won’t ever drop: Unlike a variable rate that could shift over time, a fixed rate will stay the same throughout the life of the loan. This means a fixed interest rate won’t drop if market rates decrease.
- Higher loan cost for shorter repayment terms: If you plan to pay off your loan quickly, you could end up paying more on a fixed-rate loan compared to a variable-rate loan.
When to choose a variable-rate student loan
There are also some situations where a variable-rate student loan might be the best choice for your needs. Here are a few benefits of variable rates to consider:
- Lower initial interest rate: Variable rates generally start off lower than fixed interest rates, which could be especially helpful if you plan to pay off your loan quickly before the rate can change too much.
- Lower initial payments: Because variable rates are usually lower than fixed rates to start, your initial payments will start off lower in comparison. This might be appealing if you expect your income to rise over time.
- Potential for interest rate drops: Depending on market conditions, a variable rate might drop in the future. This also means your monthly payments will be reduced.
When you might not want a variable-rate student loan
Although a variable rate might be appealing in some cases, here are a few drawbacks to think about:
- Interest rate could change: A variable rate can rise or fall along with market conditions. This could make it difficult to estimate your overall repayment cost.
- Unpredictable payments: Any changes in your variable rate will also mean shifts in your monthly payments.
- Potentially more expensive overall: Depending on how quickly you pay off your student loan, you might find yourself paying much more over time with a variable rate compared to a fixed rate.
How do student loan interest rates work?
Your interest rate is the main factor that will determine how much you’ll pay for a student loan over time. Here’s how student loan interest rates work for federal and private student loans:
Federal student loan interest rates
All federal student loans have fixed rates that will stay the same throughout the life of the loan. Federal rates are set by Congress and are updated each year. The rate you get on a federal student loan will depend on the type of loan you choose as well as your year in school.
Here are the rates you can expect for the 2021-22 academic year as well as how rates have changed over time:
- Direct Subsidized Loans: 3.73%
- Direct Unsubsidized Loans (for undergraduate students): 3.73%
- Direct Unsubsidized Loans (for graduate and professional students): 5.28%
- Direct PLUS Loans (for graduate students and parents): 6.28%
Learn More: Federal vs. Private Student Loans: 5 Differences
Private student loan interest rates
The interest rates on private student loans are set by individual lenders based on market conditions. Many private lenders offer both fixed- and variable-rate student loans.
Here are the rates you can expect on the private student loans offered by Credible’s partner lenders as well as how variable rates have shifted on private loans over time:
- Fixed rates from (APR): 2.99%+
- Variable rates from (APR): 0.99%+
How to get the lowest student loan rate
Here are a few strategies that could help you get a good interest rate on a private student loan:
- Have good credit. Your credit score is one of the main factors that will determine the rates you’re offered. You’ll generally need good to excellent credit to qualify for the lowest interest rates — a good credit score is usually considered to be 700 or higher.
- Apply with a cosigner. If you have less-than-perfect credit, applying with a cosigner could make it easier to get approved for a private student loan. Having a creditworthy cosigner might also get you a lower interest rate than you’d get on your own.
- Choose a shorter repayment term. Many lenders offer lower rates for shorter repayment terms. It’s usually a good idea to pick the shortest term you can afford to keep your interest costs as low as possible.
- Compare lender options. It’s important to research and compare your options from as many lenders as possible. This way, you can find the right loan with the most favorable rate for your needs.
If you’re ready to start shopping for a private student loan, Credible can help. You can compare your prequalified rates from our partner lenders in the table below in two minutes.
|Lender||Fixed Rates From (APR)||Variable Rates From (APR)||Loan amounts||Loan terms (years)|
|3.19%+||1.83%+||$2,001 to $200,000||7 to 20|
|3.23%+1||1.03%+1||$1,000 to $350,000 (depending on degree)||5, 10, 15|
||0.99%+2,3||$1,000 up to 100% of the school-certified cost of attendance||5, 8, 10, 15|
|3.75%+||1.08%+||$1,000 to $99,999 annually |
($180,000 aggregate limit)
|7, 10, 15|
|3.0%+7||2.17%+7||$1,000 to $200,000||7, 10, 15|
|3.83%+8||1.56%+8||$1,001 up to 100% of school certified cost of attendance||5, 10, 15|
|3.75%+||N/A||$1,500 up to school’s certified cost of attendance less aid||15|
|3.5% - 12.6% APR9||1.13% - 11.23% APR9||Up to 100% of the school-certified cost of attendance||15|
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How to calculate student loan interest
Before you take out a student loan, it’s important to consider how much that loan will cost you over time. This way, you can be prepared for any added expenses.
You can see what your estimated monthly payment will be along with your total interest costs by using our student loan calculator below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan, assuming you're making full payments while in school.
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Matt Carter contributed to the reporting of this article.