Fixed vs. variable student loan rates: Which is best?

Student loans can come with either fixed or variable rates. Private student loans have both options, but federal student loans only have fixed rates.

Each works best depending on the situation, such as the type of student loan you’re taking out. Fixed-rate loans are usually the safest choice for many students since it’s hard to predict which direction rates will go, but both rate types have their pros and cons.

Fixed vs. variable rates: Pros and cons

Fixed-rate loans come with an interest rate that remains the same throughout the life of the loan, meaning you’ll have predictable monthly payments. By comparison, variable-rate student loans have an interest rate that fluctuates based on market conditions.

Picking a variable-rate student loan could be beneficial in some scenarios, but it’s tricky because market conditions are unpredictable.

If the Federal Reserve (Fed) changes its benchmark rate, it can influence rates for borrowers with variable student loans. When the Fed lowers its benchmark rate, lenders might lower their minimum advertised rates. On the other hand, when the Fed increases its benchmark rate, lenders might increase their interest rates.

Although the Fed’s decision to lower or raise its benchmark rate doesn’t impact rates for existing borrowers with fixed-rate student loans, it could influence rates for new borrowers. The fixed rate for federal student loans is adjusted annually on July 1 based on market conditions, and private lenders often adjust their fixed rates based on the market environment.

Fixed-rate student loans

Fixed rates remain constant during the loan term, which means your monthly student loan payments will be predictable as you pay off your debt. The only way to change a fixed interest rate is by refinancing the loan.

While fixed rates are typically higher than the lowest advertised variable rates, they provide stability because the payment won’t change. You’ll know exactly how much you’ll pay monthly and how much interest you’ll pay overall.

Pros

• Interest rate will never change
• Monthly payments are consistent
• You’ll know how much interest you’ll pay

Cons

• Generally higher starting rates
• No benefit if interest rates drop

Note that all federal student loans come with fixed rates. Since federal loans come with benefits that private student loans don’t offer, like access to income-driven repayment plans and student loan forgiveness programs, we recommend that you exhaust your federal student loan eligibility first before turning to private student loans to fill in any funding gaps.

Upcoming changes to student loan repayment options

With the passage of the One Big Beautiful Bill Act, a lot of changes are in store when it comes to repayment options. Student loans expert Andrew Pentis breaks it down for you.

Learn more

Variable-rate student loans

Variable interest rates are tied to market conditions, so your student loan payment could increase or decrease based on an adjustment in your interest rate. Lenders typically tie the loan’s variable rate to a benchmark rate, like the prime rate or the Secured Overnight Financing Rate (SOFR) index, plus a fixed margin.

While you might start with a lower payment than you would with a fixed-rate loan, your interest rate – and monthly payment – could rise later on.

Pros

• Typically lower starting rates
• Benefit from market changes (in some cases)
• Lower monthly payments if interest rates are low

Cons

• Rate can rise over time
• Monthly payment can change
• Can be more difficult to budget for

Fixed or variable rate: When to choose

Fixed interest rates are good for borrowers who don’t have a lot of wiggle room to account for an adjusting interest rate. Variable-rate student loans are a good option if you qualify for the lowest rates available.

As mentioned earlier, all new federal student loans have fixed interest rates, and fixed rates are typically an option with private lenders. Private student loans tend to offer variable interest rate options as well.

The idea that fixed-rate student loans are always better is a common misconception, according to Lawrence D. Sprung, certified financial planner and founder of Mitlin Financial and Wealth Advisor.

In comparison, Tayne advises most student loan borrowers to choose a fixed-rate loan because payments are predictable and easier to manage with their budgets. While she acknowledges variable rates may be better if the student can qualify for a lower rate and pay off the loan within a few years, she notes that it’s rarely the case for college students with little income or savings.

Here are some scenarios where choosing a student loan with a fixed rate can make sense:

Student loan calculator

Want to figure out some of the logistics of your student loans and experiment with some numbers? Bankrate wants to help you crunch the numbers.

Calculate now

What to consider before choosing

When deciding whether a variable- or fixed-rate student loan is best for you, Sprung says to consider the terms of the loan, economic or interest rate outlook and your financial situation. In addition, here are some other things to consider.

• Consider the type of student loan: If you’re taking out federal student loans, your only option is a fixed interest rate. In contrast, most private lenders offer both.
• Think about how long it’ll take to pay off the loan: The longer your student loan, the more time a variable rate will have to fluctuate. That makes variable rates a better choice for parents or students who are not deferring payment.
• Look at market conditions: Take a look at current economic conditions and whether interest rates are rising or falling. For example, the Federal Reserve has been working to lower its interest rate, but markets are currently uncertain.
• Ask about variable terms: If you’re considering a variable-rate loan, ask the lender how often the rate changes and whether there’s a maximum rate cap.
• Think about your risk tolerance: Consider whether you’d be okay with short-term interest rate fluctuations or if you’d rather have the peace of mind of a fixed rate.
• Look at your credit score: Variable rates are best for those who can get the best rates and terms. If your credit score is lower, you may need student loans for bad credit, most of which have fixed APRs.

Take your time to think about each of these factors and how they might impact you if you were to choose a variable- or a fixed-rate student loan. And remember that you can change your mind later and refinance your loans if you decide the other option is better for you.

Student loan refinance calculator

Want to see if refinancing is right for you? Bankrate’s student loan refinance calculator is here to help.

Calculate now

How to switch student loan rate types

Just because you choose one type of student loan doesn’t mean you have to stick with it for the life of the loan. You can refinance your student loans, which means swapping out your current student loans with a new private student loan.

Keep in mind that there’s no guarantee that refinancing later might be difficult, depending on your financial situation. “Depending on where rates go, your credit history and income will impact how easy [it is to refinance],” Sprung says.

1. Fixed rate to variable rate

If you have a fixed-rate federal or private student loan, it’s possible to refinance to a variable-rate private student loan. Doing so could be a smart move if you can save money. That said, think twice about refinancing federal student loans because it means you’ll lose access to federal benefits, such as federal forbearance.

2. Variable rate to fixed rate

You can also refinance from a variable-rate private student loan to a fixed-rate private loan. Making this choice could be a wise move if you prefer predictable monthly payments and can qualify for a lower fixed rate.

Bottom line

A fixed-rate student loan may be the best option if you prefer a longer repayment period and stable monthly payments throughout the life of the loan. Plus, it’s your only option if you’re exhausting your federal loan options first, which experts often recommend.

If you intend to pay off your loan faster and need a private student loan to fill in funding gaps, a variable-rate loan could be a better fit for you. Whichever option you choose, compare rates and terms from as many lenders as possible to get the best deal. You may also have to check into student loans for bad credit.