The Difference Between a Variable Rate and a Fixed Rate

There are a lot of questions students ask before taking loans to pay for college. For those who need a private student loan, one such consideration is: “Should I choose a fixed rate or variable interest rates”? In order to know what’s right for you, you’ll have to compare the two types of interest rates and determine which option is best for you given your personal circumstances. 

Is it better to get a fixed or variable student loan

Understanding what is the difference between a fixed and variable interest rate only comes up when you’re taking private student loans. Federal student loans only have one option – fixed interest rate. The federal government sets one fixed rate of interest for the year and all borrowers pay the same rate regardless of any other factors. Private lenders on the other hand will give you the option to choose between fixed and variable interest rates. Knowing how they work and the difference between fixed and variable interest rates will help you make a more informed decision about which is better for you. 

What is a fixed rate loan? 

A fixed rate loan is a type of loan in which the interest rate remains the same for the entire life of the loan. The lender sets the rate based on market conditions at the time of drawing up the loan agreement. Once the rate is set it remains fixed for the loan term, regardless of whether the market rates increase or decrease. 

With a fixed rate loan, the loan payments and amount of interest remain the same every month till the loan is completely paid off. This is regardless of any changes in the economy or the lender’s policies.

Pros and cons of a fixed rate loan

Your Student Loan, Your Way.

Variable rates from 4.98% - 12.79% APR



The biggest benefit of a fixed rate loan is the stability and predictability that it provides. When you take this type of loan, you know exactly how much you need to set aside every month for the duration of the loan. Knowing your payments won’t change from one month to the next allows you to confidently create a budget and plan out your finances for the long term. You also know in advance exactly how much you’ll pay in accrued interest for the money you’re borrowing. 

Another benefit of fixed rate loans is that you don’t have to worry about your interest rate increasing even if market lending rates go up. 


The downside of a fixed rate loan is that it typically has a higher starting interest rate compared to a variable rate loan. This means that you may end up paying more in accrued interest over the life of the loan.

What is a variable rate loan? 

A variable rate loan is a type of loan in which the interest rate can change periodically. The key here is the word “variable” meaning, essentially, subject to change. The interest rate is typically tied to market lending rates and can increase or decrease as market rates rise and fall. When index rates go up, your monthly interest rate and your monthly payments also increase. If the index rates drop, your monthly interest and monthly payments will decrease. So you could end up saving or losing money over the loan term. 

Pros and cons of variable rate loan


The benefit of a variable rate loan is that it would typically have a lower starting interest rate compared to a fixed rate loan. This means you’ll save money right at the outset and you’ll likely pay less in accrued interest over the life of the loan. Taking a variable rate loan can be especially beneficial in a dropping market.  

Additionally, some variable rate loans may have interest rate caps, which limit the amount the interest rate can increase over time.


The biggest downside of a variable rate loan is that it is less predictable than a fixed rate loan. There’s no way to predict whether your monthly payment will increase or decrease in the following month or months. When index rates increase, your monthly payments will increase too. This makes it very difficult to budget and plan your finances even over a short term. And if there is a significant overnight increase, your monthly repayments may suddenly become unaffordable. 

Another downside of variable rate loans is if interest rates rise significantly you may end up paying much more in interest than you would have with a fixed rate loan. This is even if you started out with a lower interest rate. 

Should I take a fixed or variable rate loan? 

As we said earlier, neither one is better than the other in all respects. Each of the options has its pros and cons. Which option is better for you depends on your individual situation and preferences. 

A fixed rate loan may be better if:

  • you prefer the stability and predictability that this option guarantees.
  • you are willing to pay a slightly higher interest rate for that peace of mind.

Over the long term, in most cases, fixed rate loans work out a little cheaper. If you’re looking for a little bit more structure and permanence, look into fixed rates. With these, what you see is what you get. Fixed rates do not fluctuate. They stay constant throughout the duration of the loan. This is also the best option for you if you are looking for steady payments instead of ones that can roller coaster.

Choose a variable rate loan if:

  • you are comfortable with some level of uncertainty in your payments.
  • you are not too stressed about not being able to set long-term financial goals.
  • you are willing to take on the risk of potentially paying more in interest if interest rates rise.

Variable rates can be a bit of a gamble. On the one hand, you might score a lower interest rate, but on the other, it might go up. This also affects your payments—you could end up paying more one month and paying less another month, or vice versa. 

Most importantly, consider the variable rate option only if you have spare cash that you can use towards your loan repayments should the monthly interest rates increase. If you don’t have money that can be used to cover the increased monthly payments, you’re at risk of defaulting on your loan. This can have other more serious consequences.  

A Recap

Fixed rate loans are the better option if you like the predictability of same payments every month. 

Variable rates are the better option if you intend to pay off your loans quickly. The lower starting interest rates help you save some money and short-term market fluctuations will have minimum impact on the cost of the loan.  

Use College Raptor’s new Student Loan Finder to discover personalized loans. Compare lenders and interest rates to find the ideal student loan for you!



Lender Rates (APR) Eligibility
Citizens logo.
6.98%-15.04%* Variable
5.99%-14.00%* Fixed
Undergraduate and Graduate
Sallie Mae logo.
6.37% - 16.70% Variable
4.50% - 15.49% Fixed
Undergraduate and Graduate
Credibe company logo.
4.98% - 16.85% Variable
4.07% - 16.49% Fixed
Undergraduate and Graduate
Lendkey company logo.
6.07% - 11.31% Variable
4.39% - 10.39% Fixed
Undergraduate and Graduate
Ascent company logo.
6.24% - 15.85% Variable
4.29% - 15.76% Fixed
Undergraduate and Graduate
6.54% - 11.08% Variable
3.95% - 8.01% Fixed
Undergraduate and Graduate
Earnest company logo.
5.62% - 18.26% Variable
4.11% - 15.90% Fixed
Undergraduate and Graduate
4.98% - 12.79% Variable
8.42% - 13.01% Fixed
Undergraduate and Graduate
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.

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