Fixed vs variable interest rates: Which option is right for you?

Why interest rates matter

Interest is the cost of borrowing money that adds up over time. Even a small difference in your rate can change both your monthly payment and the total you’ll repay over the life of your loan. That’s why it’s so important to understand your rate options before taking out a loan—you’ll know exactly what to expect and how to plan ahead.

What is a fixed interest rate?

A fixed interest rate stays the same throughout the life of your loan. That means your rate (and your monthly payment) won’t change, no matter what happens in the market.

Pros of fixed rates:

• Predictable monthly payments
• Easier to budget long term
• Peace of mind during uncertain economic times

Cons of fixed rates:

• Often higher than starting variable rates
• May cost more in the short term if you plan to repay quickly

What is a variable interest rate?

A variable interest rate can change over time. It’s tied to a financial index, such as the prime rate or Secured Overnight Financing Rate (SOFR), which means it can go up or down based on market conditions.

Pros of variable rates:

• Often starts lower than fixed rates
• Potential to save money if you repay your loan before rates increase

Cons of variable rates:

• Less predictable payments
• Possible higher total loan cost if rates rise
  

Does Sallie Mae offer fixed and variable rates?

Yep, Sallie Mae has private student loans with fixed or variable rates, so you can pick the one that works best for your budget and goals.

With Sallie Mae, you'll also benefit from:

• No origination fees
• No prepayment penalties
• Flexible repayment options during school and after graduation

Whether you're pursuing an undergraduate, graduate, or professional degree, Sallie Mae offers competitive rates and tools to help you make the best decision for you. 

How to decide between a fixed or variable rate

Before you make a decision, it’s smart to ask yourself these questions to figure out what option might be the best fit.

• Do I prefer predictable monthly payments?
  If yes, a fixed rate may be best.
• Am I planning to pay off my loan quickly?
  If yes, a variable rate could help you save on interest in the short term.
• Can I handle potential increases in monthly payments?
  If no, a fixed rate offers stability.

Also, think about the bigger picture, aka the economic climate. If rates are likely to go up, a fixed rate now could be smart. If rates stay low or drop, a variable rate might save you money in the short term.

Take control of your loan 

Fixed and variable interest rates each have their advantages. Which one is best depends on your budget, timeline, and comfort with risk. Understanding the difference helps you choose the student loan that works for you.

Not sure which fits your needs? Use Sallie Mae’s student loan calculator to see estimated monthly payments for both fixed and variable rates.

Check out your loan options and apply online today.