Variable-rate student loans can be an attractive option, but most students (as a practical matter) stick with fixed-rate student loans. When looking at variable- versus fixed-rate student loans, here are six things to know about both.
Variable vs. fixed interest rate student loans
A variable interest rate fluctuates over time, while a fixed interest rate remains the same over the life of a loan.
Variable interest rate student loans: 6 things to know
As a reminder, you’ll only have to decide between a variable rate and a fixed rate if you borrow a private student loan. Private student loan lenders can choose to offer both options.
A variable-rate student loan typically comes with a low-end interest rate that is below that of a fixed rate — and sometimes significantly lower.
Variable APRs for College Ave undergraduate student loans start at 1.69%, for example, while fixed APRs start at 3.22%.
Many private student loan lenders tie variable interest rates to the one-month or three-month Libor Interbank Offered Rate, a market benchmark. Sallie Mae, for example, uses the one-month Libor.
The Libor is often impacted by the Federal Reserve federal funds rate, said Mark Kantrowitz, publisher of Savingforcollege.com. If the Federal Reserve announces a quarter-point increase, the Libor will often change within three months, Kantrowitz said.
Federal Reserve officials have indicated that they want to hold rates steady through 2020.
A variable-rate loan could save you money compared with a fixed-rate loan if the initial rate is lower and the borrower is confident that they can pay it off before the midpoint of the loan term, Kantrowitz said.
For instance, let’s assume you borrowed a seven-year private student loan but pay it off in three-and-a-half years. Despite possible increases in those early years, Kantrowitz said your weighted average interest rate at the midpoint would likely be close to the fixed rate you would have received.
A variable-rate loan could make sense if rates seem to be heading lower or holding steady.
A one percentage point increase in the interest rate on a variable loan, Kantrowitz said, can increase the monthly loan payment by as much as 5% on a 10-year term, 10% on a 20-year term and 15% on a 30-year term.
If you’re exploring a variable-rate loan, ask lenders how often their rates change. Some lenders will adjust the rate monthly (such as Earnest), while others will adjust every three months (such as Education Loan Finance).
Also, find out if your variable student loan rates are capped. For example, SoFi private student loan variable rates were capped at 13.95% as of Jan. 29, 2020.
Fixed interest rate student loans: 6 things to know
Fixed-rate federal and private student loans provide peace of mind because you will always know what your monthly payments will be. This can be especially important if you intend to pay off a student loan over a longer period of time, such as 10 to 25 years.
Fixed interest rates for federal loans are tied to the 10-year U.S. Treasury note. The interest rates for federal loans are announced each May and go into effect on July 1.
Here are the fixed interest rates for federal loans disbursed on or after July 1, 2019, and before July 1, 2020:
- 4.53%: Direct subsidized and direct unsubsidized loans for undergraduates
- 6.08%: Direct unsubsidized loans for graduates and professional students
- 7.08%: Direct PLUS loans for parents, graduates and professional students
While federal loans have the same interest rates for everyone, private loans come with different interest rates depending on a variety of factors, including the credit score of the borrower or cosigner. The rate might also depend on a student’s major.
When you look at advertised interest rates for private loans (fixed or variable interest), the ranges can be huge. Kantrowitz estimates that less than 10% of borrowers get the best-advertised interest rate, so keep that in mind when you are rate shopping.
Kantrowitz said 10-year repayments used to be common for fixed-rate private student loans, but now you’re seeing lenders offering a wide range of repayment periods.
Shorter fixed-rate loans have lower starting interest rates built in, Kantrowitz said, since they are less risky for lenders in brief periods. Most of the savings from a short-term fixed-rate loan will come from the condensed repayment period rather than a lower interest rate, Kantrowitz said.
Refinance your student loans to switch between variable, fixed
If interest rates are rising (or dropping), it could make sense for borrowers to refinance their student loans.
To refinance, you’ll need to meet certain requirements:
- Credit score
- Annual income
- College degree (or certificate of enrollment if you’re still a student)
To help decide if refinancing is right for you, try using our student loan refinancing calculator.
Miranda Marquit contributed to this report.
Interested in refinancing student loans?Here are the top 8 lenders of 2022!
|Lender||Variable APR||Eligible Degrees|
|2.50% – 6.30%1||Undergrad & Graduate|
|2.05% – 5.25%2||Undergrad & Graduate|
|1.89% – 7.99%3||Undergrad & Graduate|
|2.24% – 7.99%4||Undergrad & Graduate|
|1.89% – 7.99%5||Undergrad & Graduate|
|1.86% – 7.98%||Undergrad |
|1.74% – 7.99%6||Undergrad & Graduate|
|2.24% – 9.23%7||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $9 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
2 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
3 Important Disclosures for Navient.
4 Important Disclosures for SoFi.
Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
5 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.49% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.14% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
6 Important Disclosures for Purefy.
Purefy Student Loan Refinancing Rate and Terms Disclosure: Annual Percentage Rates (APR) ranges and examples are based on information provided to Purefy by lenders participating in Purefy’s rate comparison platform. For student loan refinancing, the participating lenders offer fixed rates ranging from 2.73% – 7.99% APR, and variable rates ranging from 1.74% – 7.99% APR. The maximum variable rate is 25.00%. Your interest rate will be based on the lender’s requirements. In most cases, lenders determine the interest rates based on your credit score, degree type and other credit and financial criteria. Only borrowers with excellent credit and meeting other lender criteria will qualify for the lowest rate available. Rates and terms are subject to change at any time without notice. Terms and conditions apply.
7 Important Disclosures for Citizens.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 2.24%-9.23% (2.24%-9.23% APR). Fixed interest rates range from 4.29%-9.73% (4.29%-9.73% APR).
Undergraduate Rate Disclosure: Variable interest rates range from 5.37%- 8.81% (5.37% – 8.81% APR). Fixed interest rates range from 5.87% – 9.31% (5.87% – 9.31% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.24% – 8.75% (2.24% – 8.75% APR). Fixed interest rates range from 4.29% – 9.25% (4.29% – 9.25% APR).
Education Refinance Loan for Parents Rate Disclosure: Variable interest rates range from 2.24%- 8.40% (2.24%- 8.40% APR). Fixed interest rates range from 4.29% – 8.90% (4.29% – 8.90% APR).
Medical Residency Refinance Loan Rate Disclosure: Variable interest rates range from 2.24% – 8.75% (2.24% – 8.75% APR). Fixed interest rates range from 4.29% – 9.25% (4.29% – 9.25% APR).