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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
- Fixed-rate student loan benefits and drawbacks
- Variable-rate student loan benefits and drawbacks
- Student loan refinancing: Better to get a fixed or variable rate?
- How do student loan interest rates work?
- How to get the lowest student loan rate
- How to calculate student loan interest
- How rate indexes affect student loans
- Example of a fixed vs. variable interest rate
Fixed vs. variable student loan interest rates
If you’re comparing a fixed versus 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 |
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No matter if you choose a fixed- or variable-rate student loan, it’s important to shop around and compare as many lenders as possible. This way, you can find the right loan for your needs.
Credible makes this easy — you can compare your prequalified rates (both fixed and variable) from multiple lenders in two minutes.
See Your Rates
Checking rates will not affect your credit
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 | 4.99%* | Fixed only |
| Federal Direct Unsubsidized Loans |
| Fixed only |
| Federal Direct PLUS Loans | 7.54* | Fixed only |
| Private student loans |
| Fixed or variable |
| *Federal student loan rates for the 2022-23 academic year. | ||
Check Out: How to Pay for College With No Money Saved
Fixed-rate student loan benefits and drawbacks
Before you apply for a fixed-rate student loan, you’ll want to consider the benefits and drawbacks.
Benefits of 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.
Learn More: Best Parent Student Loans: Choosing Private or PLUS Loans
Drawbacks of 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.
Check Out: Grad PLUS Loans: PLUS Loans for Graduate Students
Variable-rate student loan benefits and drawbacks
Variable-rate student loans also come with benefits and drawbacks to consider.
Benefits of a variable-rate student loan
A variable-rate student loan might be the best choice for your needs in some situations. 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.
Learn More: Independent vs. Dependent Student: Which Are You?
Drawbacks of 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.
This can help keep your interest costs lower as well as offer some peace of mind. However, you might still end up paying more in interest with a capped variable-rate loan than you would with a fixed-rate loan — especially if you can’t pay off your loan before your rate has a chance to change.
Student loan refinancing: Better to get a fixed or variable rate?
Student loan refinancing is the process of paying off your old loans with a new private student loan, leaving you with just one loan and payment to manage.
If you choose to refinance your student loans, you’ll also typically have a choice between a fixed or variable rate — this means you can switch the kind of rate you currently have.
Pros and cons of a fixed-rate refinanced loan
While a fixed-rate refinanced loan could be a good choice for some borrowers, it isn’t right for everyone. Here are some pros and cons to keep in mind as you consider your options:
| Pros | Cons |
|---|---|
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|
Pros and cons of a variable-rate refinanced loan
Like fixed-rate loans, variable-rate loans also come with their own pros and cons when it comes to refinancing, such as:
| Pros | Cons |
|---|---|
|
|
Check Out: How to Use Student Loans for College Living Expenses
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.
Additionally, most federal student loans don’t require a cosigner or a credit check.
Here are the rates you can expect for the 2022-23 academic year, as well as how rates have changed over time:
- Direct Subsidized Loans: 4.99%
- Direct Unsubsidized Loans (for undergraduate students): 4.99%
- Direct Unsubsidized Loans (for graduate and professional students): 6.45%
- Direct PLUS Loans (for graduate students and parents): 7.45%
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.
Some lenders offer private student loans for bad credit. But these loans usually come with higher interest rates compared to good credit 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): 3.65%+
- Variable rates from (APR): 4.49%+
Check Out: Private Student Loans & COVID-19: What You Need to Know
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 cosigner with good credit 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) |
|---|---|---|---|---|
Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 4.62%+10 | 5.74%+10 | $2,001 to $400,000 | 7 to 20 |
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 4.99%+1 | 4.89%+ | $1,000 to $350,000 (depending on degree) | 5, 10, 15 |
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
|
4.49%+2,3
| 4.49%+2,3 | $1,000 up to 100% of the school-certified cost of attendance | 5, 8, 10, 15 |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 3.65%+ | 5.46%+ | $1,000 to $99,999 annually ($180,000 aggregate limit) | 7, 10, 15 |
|
||||
Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 7.52%+7 | 6.89%+7 | $1,000 to $200,000 | 7, 10, 15 |
|
||||
Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 4.37%+8 | 5.86%+8 | $1,001 up to 100% of school certified cost of attendance | 5, 10, 15 |
|
||||
Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 4.89%+ | N/A | $1,500 up to school’s certified cost of attendance less aid | 15 |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 4.509 - 14.83%9 | 5.37%9 - 15.709 | $1,000 up to 100% of school-certified cost of attendance | 10 to 20 |
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your credit score. 100% free! |
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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.
How rate indexes affect student loans
Variable rate loans, including private student loans with variable interest, use an index to determine your interest rate. The index is based on current market conditions. For example, when inflation is low, an index will generally be low — but when inflation increases, the index also goes up.
Private lenders will give you a variable interest rate based on that index, plus a margin that’s generally determined based on your credit. If you have a good credit score and history, the margin will be lower, so your variable interest rate will only be a little higher than the index rate.
Here’s how your private lender calculates your variable interest rate:
Your variable rate = Index (which fluctuates) + Margin (which remains the same)
What are LIBOR and SOFR?
A lender might use several indexes to determine your variable interest rate. For a long time, the London Interbank Offered Rate (LIBOR), which is based out of the United Kingdom, was the most common index used for determining variable interest rates. However, this index is scheduled to be discontinued as of June 2023.
Private student loan lenders will generally be required to pick a replacement index that’s comparable to LIBOR. Lenders will likely choose the Secured Overnight Financing Rate (SOFR), as this is the index recommended by the Federal Reserve’s Alternative Reference Rates Committee. SOFR charts the average rate of interest that U.S. banking institutions borrow money from other institutions overnight, using U.S. Treasury bonds as collateral.
In other words, the SOFR rate determines the cost of borrowing for banks, and it helps banks decide how much interest to charge borrowers.
Example of a fixed vs. variable interest rate
When you’re comparing student loan products, it can be tough to determine whether a fixed interest rate or a variable interest rate will be cheaper. A fixed interest rate will typically be higher than a variable rate when you first take out the loan. But depending on how the index performs, you may end up paying more in interest with a variable rate over time.
Let’s look at an example:
Say you take out a private student loan for $20,000 with a fixed interest rate of 6.42% and a fixed monthly payment of $226 for 10 years.
However, if you choose a variable rate for the $20,000 loan, your initial APR would be 4.15% and you’d have a monthly payment of $204 over the same 10-year repayment period. (The 4.15% APR is based on the current SOFR rate of 0.78 plus a margin of 3.37%.)
Let’s see how the variable rate might change over time:
| Fixed interest rate | ||||
|---|---|---|---|---|
| Year 1 (SOFR at 0.78) | Rate | Margin | Index | Variable rate |
| Year 2 (SOFR ↑ 2.0%) | 6.42% | 3.37% | 2.78% | 6.15% |
| Year 3 (SOFR ↑ 1.0%) | 6.42% | 3.37% | 3.78% | 7.15% |
| Year 4 (SOFR ↓ 0.5%) | 6.42% | 3.37% | 3.28% | 6.65% |
| Year 5 (SOFR ↑ 0.25) | 6.42% | 3.37% | 3.53% | 6.90% |
| Year 6 (SOFR ↓ 1.0%) | 6.42% | 3.37% | 2.53% | 5.90% |
| Year 7 (SOFR ↓ 0.75%) | 6.42% | 3.37% | 1.78% | 5.15% |
| Year 8 (SOFR ↑ 2.0%) | 6.42% | 3.37% | 3.78% | 7.15% |
| Year 9 (SOFR ↓ 1.5%) | 6.42% | 3.37% | 2.28% | 5.65% |
| Year 10 (SOFR ↓ 0.25%) | 6.42% | 3.37% | 2.03% | 5.40% |
Though your variable rate in this example would be lower than your fixed rate for the majority of your repayment term, there are four years during which your variable rate (and therefore your monthly payment and total interest paid) would be higher than your fixed rate.
It might be a good idea to pay more than your monthly repayment amount with a variable rate loan when the variable rate is low. Paying more than the minimum allows your extra payment to go toward the principal, which will reduce your repayment time and the amount you’ll pay in interest over the life of the loan.
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.
Matt Carter contributed to the reporting of this article.
