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Whether you’re borrowing a new loan or refinancing existing student debt, you’ll have the chance to choose between a fixed and variable rate student loan. Both rate types have their pros and cons, but here we’ll focus on the reasons to consider a variable rate student loan. If any of these apply to you, a variable rate could be the way to go.
- You might consider a variable rate student loan if…
- Fixed vs. variable rate student loan: Which is better
You might consider a variable rate student loan if…
Rates are low (and are expected to stay low)
Variable rates can change over time, whereas fixed rates stay the same over the life of your loan. So why would you want to run the risk of a rate that could rise in the future?
Well, variable rates typically start out lower than fixed ones. For example, LendKey’s refinancing partners currently offer variable rates starting at 1.58%, whereas their fixed rates start at 3.23% (as of April 2020).
If you can qualify for a variable rate that’s much lower than its fixed rate counterpart, it could be worth the risk for the savings you’ll get now.
It could also be worth it if you expect rates to stay low for the foreseeable future. While there’s no way to predict exactly which way rates will go, you might do some research into economic trends to make an informed prediction.
You can pay off your loan quickly
Another situation where it could make sense to go with a variable rate is if you’re able to pay off your loan quickly, perhaps in five years or less.
If you’re not going to be in debt for a long time, you don’t have to worry as much about your rate rising dramatically. On the other hand, if you’re going with a 10-, 15-, or 20-year term, you might prefer a fixed rate for the peace of mind.
Think about how your finances look now and how you expect them to change in the future. If you’re confident you can pay off your student loans in a short period of time, you might save money by going with a variable rate.
You want lower monthly payments at the beginning
Finally, a variable rate could make sense if you want lower payments at the beginning of your student loan repayment.
Maybe you have a lower income now but expect your income to rise in the future. For instance, perhaps you’re going back to school for an advanced degree and refinancing your private student loans for better rates.
A lower variable rate could mean lower student loan payments at the beginning (plus less interest when your balance is at its highest). But if it rises in the future, you might see your payments increase, too.
Fixed vs. variable rate student loan: Which is better?
While a variable rate student loan might be preferable in these scenarios, a fixed rate could be a good option, too.
If you want to have fixed payments over the life of your loan with no variability, go with a fixed rate. Knowing that your rate and payments won’t change over time could give you peace of mind.
But on the other hand, if you can get a low variable rate and are confident you can pay your student loan off quickly, it could be worth the risk.
Ultimately, the choice is yours. Think about which rate type will save you the most money, as well as your comfort level with risk to select the right rate type for you.
For more, head here for a direct comparison of variable vs. fixed rate student loans.
Want better rates? Here are the best banks to refinance student loans:
| Variable rates start at... | Fixed rates start at... | Repayment terms | Welcome bonus | Check your rates | |
|---|---|---|---|---|---|
 | 4.54% | 4.49% | 5 - 20 years | $200 | Visit LendKey |
 | 4.99% | 4.47% | 5 - 20 years | $200 | Visit Earnest |
 | 4.22% | 3.97% | 5, 7, 10, 15, and 20 years | $120 | Visit Laurel Road |
 | 4.53% | 4.40% | 5 - 20 years | $100 or $200, depending on the amount you refinance | Visit Credible |
 | 5.09% | 4.74% | 5, 7, 10, 15, and 20 years | $100 | Visit SoFi |
 | 4.53% | 4.83% | 5, 7, 10, 15, and 20 years | $100 | Visit ELFI |