Best-Variable Rate Student Loans

Private student loan lenders offer two types of student loans: fixed-rate and variable-rate loans.

The interest rate and payment on fixed-rate loans do not change over time, while variable-rate loans often offer lower starting interest rates but may result in higher rates and monthly payments during the loan term.

This guide explores both types of loans and explains when variable-rate loans might work best. 

Current private student loan rates

What is a variable-rate student loan?

Variable-rate student loans offer an interest rate that can change over the life of a loan. The rate is tied to an index or benchmark interest rate, like the Secured Overnight Financing Rate (SOFR). Due to the interest rate changes, variable-rate student loan payments can fluctuate.

In contrast, a fixed-rate student loan offers a set interest rate and payments that don’t change over time. 

Variable-rate student loans typically offer a lower starting interest rate, but the lower rate isn’t guaranteed for the duration of the loan. The potential changes to monthly payments can make budgeting more challenging. Since market conditions are outside of your control, you might see unexpected increases to your student loan payment if interest rates rise. 

Before you apply for student loans, it’s important to compare both fixed-rate and variable-rate loan rates to find the best fit for your situation. 

Who should consider a variable-rate student loan?

Variable-rate student loans tend to be less popular than fixed-rate loans since many borrowers prefer the stability of a fixed monthly payment. But in some cases, a variable-rate student loan might make sense. 

Some reasons for choosing a variable-rate loan might include:

• Short-term borrowing: If you plan on paying off the loan quickly, you can save money due to the lower upfront interest rate. By the time your interest rate is scheduled to change, you may have already paid off the loan.
• Refinancing plans: If you plan to refinance your variable-rate loan before the interest rate changes, taking advantage of the lower starting interest rate might make sense. 
• Falling interest rates: Variable-rate loans can adjust higher or lower. If you anticipate lower interest rates ahead, a variable-rate loan could make sense. But since it can be difficult to predict rate trends, you run the risk of seeing rates increase instead. 

“Variable-rate loans make sense if the borrower expects interest rates to go down in the future. Or if the borrower has less than stellar credit and a variable rate loan offers a lower interest rate versus a fixed rate equivalent,” says Jack Wang, college financial aid advisor at Innovative Advisory Group. 

Wang continues, “Another scenario could be that a borrower gets a lower rate now, but intends to refinance anyway in the near future. For example, if the borrower will refinance in a year to remove a cosigner, then getting a lower variable rate now can make sense.”

Best lenders for variable-rate student loans

The right lender varies based on your situation. But some of the best lenders for variable-rate student loans consistently offer borrowers an excellent value. Here’s a look at some lenders that stand out:

• Abe: Abe offers competitive rates with terms of five, seven, 10, 15, or 20 years. After graduation, the lender offers a 2% loan reduction, and you can potentially reduce your interest rate by consistently making on-time payments.

• College Ave: College Ave borrowers benefit from competitive rates. In addition to an autopay discount, the lender offers extensive grace periods with expected payments starting from six to 36 months after graduation, depending on the type of undergraduate or graduate student loans. But cosigners aren’t eligible for release until at least half of the repayment term is complete. 

• SoFi: SoFi not only offers competitive interest rates but also many member benefits, including discounts on other financial products. After 12 consecutive months of on-time payments, you can apply for cosigner release.

How to compare variable and fixed-rate loans

As you explore your student loan options, choosing between variable-rate and fixed-rate loans is an important decision that could affect your finances for years to come. The table below can help you compare the two types of loans.

Pros and cons of variable-rate student loans

Like all financial products, variable-rate loans have both pros and cons. 

“The main advantage of choosing a variable-rate student loan is that it will likely start out with a lower interest rate than a fixed-rate loan,” says Leslie H. Tayne, Esq., finance and debt expert and founder of Tayne Law Group. “If borrowers can afford to pay off the loan quickly with the low interest rate, it can save them money in the long run.”

Tayne continues, “The catch about variable-rate loans is that the low interest rate that they usually start with isn’t guaranteed to stick around, so there is a high level of risk that your monthly payment will increase if rates increase.”