Myth: Fixed Student Loan Interest Rates Are Always Better Than Variable

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As with anything related to student loans, there is no one option that is best for everyone. The best way to decide whether a fixed or variable student loan interest rate is a better option for you is by weighing the pros and cons of each.

Pros & Cons Of Fixed Student Loan Interest Rates

With fixed student loan interest rates, the interest rate on your loan will remain the same throughout the life of the loan. This gives you the advantage of knowing exactly how much you need to keep aside to cover your monthly payments after the grace period.

The downside of this option is if variable interest rates drop, you will be stuck with the higher fixed rates.

Pros & Cons Of Variable Student Loan Interest Rates

With variable student loan interest rates, the interest rate on your loan will fluctuate several times over the life of the loan. There is no way to predict whether the rate will increase or decrease during the repayment term.

The advantage of this option is that at the outset the rates generally start out much lower than the rates of fixed student loans and if the rates continue to stay low, you benefit from the lower monthly payments.

However, the unpredictability makes it difficult to calculate in advance how much you need to keep aside to cover your monthly payments. Also, the rates could spike overnight, increasing the overall cost of your loan.

Which One is Best For You?

When deciding whether to take a fixed or variable student loan, you must consider the existing and projected market conditions. Most importantly, you must determine your appetite for risk.

If the market conditions are favorable and you are prepared to take the risk of a spike in the interest rates, then a variable student loan may be worth considering.

However, if you do not like the uncertainly that is associated with variable loans, a fixed student loan may be the better option for you.

College Raptor Staff

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