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All federal student loans have fixed interest rates, but when you work with a private lender, you’ll usually have a choice of a fixed or variable student loan.
Here’s what to keep in mind about fixed vs. variable rates:
- Variable interest rates: You can often get lower rates with a variable-rate loan. But you need to be prepared for your rate and monthly payment to change — it could go up or down.
- Fixed interest rates: A fixed-rate loan gives you the certainty of a monthly payment that never changes. You’ll also know exactly what your total repayment costs will be if you make all of your monthly payments on time.
In this post:
- Fixed vs. variable student loan interest rates
- How fixed interest rates work
- How variable interest rates work
- Finding the best fixed or variable rate student loan
Fixed vs. variable student loan interest rates
|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|
|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: APR vs. Interest Rate: What’s the Difference?
How fixed interest rates work
Consider a fixed interest rate loan if:
- You’re unsure about your future earnings and want a set monthly budget
- You’ll need many years to pay your loans off
- Indexes and interest rates are on the rise
The interest rate on a fixed-rate loan from a private lender will typically be higher than what that lender would offer you on a variable-rate loan with the same repayment term.
When you take out a fixed-rate student loan from a private lender, you’ll be offered rates based on factors that include creditworthiness (yours or your cosigner’s) and the repayment term of the loan. The better your credit score and the shorter the loan term, the lower interest rate you’ll be offered.
Federal student loan rates are “one-size-fits all,” meaning everyone taking out the same type of loan in a given academic year gets the same rate. But there are three rate tiers — one for undergraduates, one for grad students, and one for parents and grad students taking out PLUS loans.
Even though rates on federal student loans are fixed, you’ll pay different rates on the loans you take out each year you’re in school. That’s because rates are adjusted once a year, to account for the government’s own of borrowing.
How variable interest rates work
Consider a variable interest rate loan if:
- You’ll be able to handle your monthly payments even if they increase
- You intend to pay your loans off quickly, reducing the impact of rate increases
- You’re comfortable with uncertainty
Variable-rate student loans are usually tied to a published index like the prime rate or London Interbank Offered Rate (LIBOR), so it can go up or down as economic market conditions change. There’s often a limit on how much your rate can go up, but you might not hit your lender’s rate cap until your interest rate reaches 15% to 18%.
The ups and downs in the prime rate and 1-month LIBOR can affect the interest rate on variable loans.
Interest rate on variable-rate student loans are calculated by adding the lender’s margin to the index rate. The margin, which is calculated when you apply for a loan, will depend on your (or your cosigner’s) credit score, the loan repayment term, and the index used. The longer the repayment term and the riskier the loan, the higher the margin.
For a loan indexed to LIBOR, the lender’s margin might be 2% to 10%. Your margin stays fixed for the life of the loan. The prime rate and LIBOR change every day, but your loan’s interest rate will typically be adjusted monthly, quarterly or annually.
Find the best rate for you today
Although you should always exhaust your options for federal student loans first, sometimes you still need more money for college. The key to finding the best rate on a fixed or variable-rate private student loan is to get rates from multiple lenders.
You can check prequalified rates with the student loan companies in the table below through Credible — without affecting your credit score.
|Lender||Fixed Rates From (APR)||Variable Rates From (APR)|
|4.25% - 12.59%9||1.13% - 11.23%9|
your credit score. 100% free!
Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Disclosures | 2,3College Ave Disclosures | 7EDvestinU Disclosures | 8INvestEd Disclosures | 9Sallie Mae Disclosures