The rise of variable-rate student loans: when they make sense in today's economy

By Anna Baluch | Published on October 21, 2025

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Compared to federal student loans that always come with fixed interest rates, private loans can be more flexible. With private student loans¹, you may be able to choose between a fixed or variable rate. While fixed rates are often a good choice, there are some situations in which variable-rate loans make sense. Let’s dive deeper into the pros and cons of variable student loans so you can make the most informed decision for your unique situation.

Variable vs. fixed-rate student loans

First, let’s quickly go over the difference between variable and fixed-rate student loans. Variable rates may rise and fall as they’re linked to economic conditions and a benchmark rate set by the Fed. Just like their name implies, fixed rates student loans are fixed, meaning they’ll remain the same over the life of the loans they’re tied to. Due to their unpredictability, variable rates can be more of a gamble than fixed rates.

Benefits of variable-rate student loans

The most noteworthy advantages of student loans with variable rates include:

• Potentially lower rates to start: At first, variable-rate student loans may offer lower interest rates and payments and therefore be less expensive than fixed-rate loans.
• Rates may go down: If you opt for variable rate loans, your interest rates might decrease, saving you money without having to refinance. Note that most lenders impose caps on how low their rates can go.

Drawbacks of variable-rate student loans

Here are the most common disadvantages of variable-rate student loans:

• Payments may increase: Even though variable-rate loans may initially lead to a lower interest rate and smaller payments than fixed rates loans, they may eventually rise.
• Budgeting concerns: It can be difficult to budget for variable-rate student loans as they’re unpredictable and you won’t know when they’ll increase and potentially become unaffordable.

When to choose a variable-rate student loan

Whether a variable-rate loan is a smart choice depends on a number of factors, such as your personal goals, how soon you plan to repay your loan, and your risk tolerance. If any of these situations apply to you, a student loan with a variable rate might make sense:

• You intend to pay off your student loan early, ideally before rates increase too much
• You have a flexible budget that can accommodate rising interest rates
• You have strong credit and may qualify for the most competitive rates
• You don’t mind a bit of risk to potentially save some money (Our student loan calculator can help you estimate potential savings)

Is it possible to switch from variable to a fixed-rate loan?

You may be able to transition from a variable interest rate student loan to a loan with a fixed-rate. It all depends on your lender and payment history. With Earnest, for example, you can refinance and switch at any time without worrying about fees, as long as you’ve made at least four months of consecutive, timely payments on your original loan. You must also agree to a hard credit check, which may temporarily lower your credit score.

Check your rate with Earnest

It’s up to you to decide whether you’d be better off with a fixed-rate or variable-rate student loan. If you plan to pay off your loan early and have some wiggle room in your budget, a variable-rate loan might be a smart move, especially if you don’t mind a bit of risk.

Fortunately, Earnest offers low rates and flexible terms. To find out what type of rates you may qualify for with Earnest, get a free rate check today. It only takes about two minutes and won't affect your credit score.

About the Author

Anna Baluch

Anna Baluch is a freelance finance writer from Cleveland, OH. She enjoys writing content that helps people from all walks of life make good financial decisions. Her areas of expertise include student loans, refinancing, mortgages, personal loans, budgeting, and debt management.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Before applying for private student loans, it’s best to maximize your other sources of financial aid first. It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grants, and work-study opportunities. 2) Next, fill out a FAFSA(R) form to apply for federal student loans. Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if you're struggling with your payments. 3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2. For more information, visit the Department of Education website at https://studentaid.gov/.