Fixed vs variable-rate student loans in 2018 credible

To determine the rate for undergraduate loans, the Department of Education tacks 2.05 percentage points onto the rate for 10-year Treasury notes auctioned in May. The add-on for federal direct loans for graduate school students is 3.6 percent, while rates for PLUS loans are equal to the 10-year Treasury note yield plus 4.60 percentage points.

As the chart above demonstrates, long-term rates like 10-year Treasury notes don’t always track short-term rates like LIBOR exactly, but there’s a correlation. Note how during the last 20 years, long-term and short-term interest rates both took a dive in 2001 (in the aftermath of the dot-com bust) and 2008 (in the wake of the housing crash), and stayed depressed for a while.

If you’re younger than 40 or 50, check out the inflationary period in the 1970s.


It might be a revelation that when oil prices and government borrowing are running rampant, interest rates can go UP during a recession (1974). And take note that rates on 10-year Treasurys are ultimately driven by markets. They can get into the double digits, even if nobody really wants them to be that high.

Second, there’s no law that says Congress can’t change the rules that determine government student loan rates again. If rates on 10-year Treasury notes soar, lawmakers — particularly Democrats — may be reluctant to let rates on government loans approach the currently mandated caps. Some Republicans who champion market principles might argue that rates should be allowed to exceed the caps. Fixed Rate vs. Variable Rate: How does interest affect you?

Generally speaking, this depends on how risk-averse you are. If you’re relatively comfortable with uncertainty or are fairly confident that interest rates aren’t going to dramatically increase, you could consider a variable rate. A variable interest rate might also work for you if you think you might be able to pay more than just the minimum amount every month, thereby shortening the length of your loan.

If you know you’ll need to borrow a lot of money to graduate from college that will take many years to repay, a fixed-term loan at today’s interest rates could be a real bargain in a decade or two. Because inflation will probably erode the value of the dollar — and pump up your paycheck — a fixed-rate loan should get easier to repay over time.

Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.