Should You Choose Fixed Rate or Variable Rate Student Loan Refinance?

Nadav Shemer
Students at table
When comparing student loan refinancing options, the interest rate is the most important thing to consider. Your interest rate determines how much you pay your lender over the duration of the loan. Even a seemingly minor difference in the interest rate can make a big difference to your bottom line in the long run.

Search for student loan refinance and you’ll come across 2 options: a fixed rate or variable rate. When comparing these 2 options, it’s crucial to think about the overall effect on your lifetime payments and not just the effect on the first monthly payment. 

Which is better for you: a fixed rate student loan refinance or variable rate student loan refinance? Read on for our guide on comparing these 2 options.

Your Choice Can Make a Big Difference


Average Fixed Rate

Average Variable Rate

Difference in Total Interest 

















This table is intended only as a guide to show how slight changes to interest rates can make a big difference to your payments. It is based on data from LendEDU’s State of Private Student Loans Report 2019, which drew on information from 200,000 student loan applicants. It presumes a loan refinance term of 10 years and amount of $13,780, the average amount from 2016-19 according to LendEDU.

Fixed vs. Variable Student Loan Refinancing: Understanding the Difference

A student loan refinance is a new loan from a private lender that replaces your old private and/or federal student loans. The main reason student loan borrowers choose to refinance is to get a lower interest rate or lower monthly payments.

A fixed-rate loan is a type of loan that maintains the same interest rate for the entire duration of the loan. The lender determines your interest rate at the start of the loan, taking into account factors like your credit score and income. Your monthly payments, comprising interest and principal, remain the same through to the end of the loan. 

A variable-rate student loan refinance is a type of loan where the interest rate (and monthly payments) can go up and down each month or quarter based on market conditions. As with any loan, the lender determines your interest rate at the beginning. However, your interest rates and monthly payments may be subject to change throughout the loan. 

Variable rates are usually tied to one financial index or another. Student loan lenders generally tie variable rates to the 1-month LIBOR (London Interbank Offered Rate), 3-month LIBOR, or the US prime rate. The calculation always involves the index plus a margin. Let’s say, for the sake of example, that a lender quotes you the current prime rate (5.50%, as of July 2019) plus a margin of 2%. In this scenario, your current variable rate would be 7.50%.

When is a Fixed-Rate Student Loan Refinance a Good Idea?

If you want more certainty, refinance your student loan with a fixed rate. With this option, you are protected from whatever’s happening in the economy. If interest rates double, triple, or quadruple over the duration of your loan—it won’t matter to you. If someone were to do a study on how many hours of sleep fixed-rate borrowers get compared to variable-rate borrowers—we can almost guarantee you that the fixed-rate borrowers would come out on top.

If you’re refinancing federal student loans, you should already be familiar with fixed-rate loans. That’s because all federal loans come with fixed rates. Private loans come with fixed rates or variable rates—it’s your choice. If you’re looking to lock in a new rate that saves you money over the life of your new loan, go with a fixed-rate student loan refinance.

When is a Variable-Rate Student Loan Refinance a Good Idea?

If you’re comfortable with taking on a certain degree of risk, a variable-rate student loan refinance is the right way to go. That’s because a variable rate offers the potential to save you lots more money in the long run. With a variable rate, the lender moves your rate every month or quarter. If the rate goes down, you save on monthly payments—the greatest benefit of a variable rate. Of course, there’s also the risk of the rate going up, increasing your monthly payments.

Because a variable rate involves more risk for the borrower, the starting variable rate is usually lower than with a fixed rate. Therefore, with a variable-rate student loan refinance, you’re guaranteed to pay less in the first few months than with a fixed-rate refinance. Another advantage to choosing a variable rate is that you can always try to refinance with a fixed rate later on if it looks like variable rates are trending up.

As it turns out, now might be a good time to take a variable-rate student loan refinance. That’s because Fed Chairman Jerome Powell has signaled that a rate cut is coming soon—possibly even at the next Fed meeting at the end of July. When the Fed reduces its target rate, the prime rate usually follows, putting pressure on lenders to drop their rates. If the Fed continues to cut rates as some people are calling for, this would be great news for variable-rate borrowers across America.

One important tip before going for a variable-rate student loan refinance: always ask your lender how they determine your rate. Overall, you should be as concerned about transparency as rates. A variable rate can help you save in the long run, but it’s important to know your lender can be trusted to pass on the full benefit of a rate cut and not sell you short.

Fixed Rate or Variable Rate: The Choice is Yours

Fixed-rate student loan refinance or variable-rate student loan refinance? Like most things in consumer finance, there is no one correct answer. What works for one person might not work for another. If your priority is locking in some savings and not having to worry about whether you might miss out on more, go for a fixed rate. If you’re the sort of person who’s happy to take risks and would like to explore potentially huge savings, go for a variable rate.

Before making a decision, always try to compare 3-5 lenders. Applying for a quote from a marketplace like Credible or direct lender like Earnest is a quick and easy way of finding out your potential rate without it affecting your credit score.

Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products.