Fixed- or Variable-Rate Student Loan: Which Is Better?

Student loans with fixed interest rates are generally a better option than those with variable rates. That's because fixed rates always stay the same, while variable rates can change monthly or quarterly in response to economic conditions.

Variable-rate loans may offer a lower rate at first, but that rate could change during the years you’ll spend repaying the loan.

If you’re unsure which type of rate to choose, go with fixed. Even in a high-rate environment, fixed rates are safer. Choosing a variable rate risks higher rates, and anticipating when student loan interest rates will change and which direction they’ll move is never easy.

» MORE: How interest rate changes affect your student loans

Comparing fixed vs. variable student loans

All federal student loans have fixed interest rates. It’s typically best to max out federal student loans before turning to private student loans, because federal loans have benefits like income-driven repayment plans and student loan forgiveness programs. Borrowers with private loans don’t have access to these generous borrower protections.

If you opt for a private student loan, or if you refinance your existing student loans through a private lender, you can typically choose a fixed or variable rate. Here's how to decide between them:

» CALCULATOR: How much student loan interest will you pay?

Fixed student loan rates are the safer bet

Fixed rates are locked in for the life of the loan. The only way to change a fixed interest rate is through student loan refinancing.

Variable student loan rates are a gamble

Variable rates are subject to change throughout the life of the loan. Student loan lenders set variable rates based on the Secured Overnight Financing Rate (SOFR). Lenders determine variable rates by adding an average of the daily SOFR to a base rate. If the SOFR goes up, your rate will also increase.

The SOFR and federal funds rate tend to go in the same direction. That is why when the Federal Reserve hikes interest rates, experts anticipate variable student loan rates to follow.

» MORE: Is it time to refinance to a variable-rate student loan?

Before getting a variable-rate student loan, ask lenders how often the rate is subject to change. Some adjust variable rates monthly, while others adjust every three months. Also, find out about the overall rate cap. Variable rates are often capped, but the caps can be as high as 25%.

Which rate type is better for student loan refinancing?

Refinancing can help you pay off student loans faster by decreasing your interest rate. If you plan to aggressively repay your refinanced loan, a variable rate may maximize your potential savings if interest rates fall.

But do the math first. The lowest fixed and variable rates for refinance lenders typically aren't that far apart. That means you may not pay much more with a fixed rate, and you'll be protected if your repayment plans change.

If you do opt for a variable rate and rates begin to climb, there's little downside to trying to refinance again.

Estimate potential student loan refinance savings