Fixed vs. Variable Loan Rates
& How to Decide Which One is Right for You

Every year, Juno members applying for student loans have the option to take a fixed or variable interest rate. Generally, our members have preferred fixed rate loans—which makes sense most of the time. This page is meant to help serve as a resource in making your decision. To be clear, we are not a financial advisor and are only here to give you more information to help you make your decision.

Juno has no financial incentive whether you take a fixed or variable rate loan. Either way, you will be getting a great rate. Here are the differences:

Fixed Interest Rates are locked in for the life of the loan. They are usually higher than what initial variable interest rates offer, but they are predictable because they will not change with market fluctuations. You might be able to lower a fixed interest rate through student loan refinancing, and many students choose to refinance when the fixed rates drop. For these reasons, historically the majority of students choose a fixed rate loan.

Variable Interest Rates are subject to change throughout the life of the loan, but can be substantially lower than fixed rates. Student loan lenders, including our lenders, typically set variable rates based on an economic indicator (index) known as the 1-month SOFR rate which serves as a “benchmark.” Lenders determine variable rates by adding a “spread” rate to the benchmark LIBOR rate. Your spread rate does not change after you get your loan and is determined by factors such as your credit score, school you attend, riskiness, etc.

What is the 1-month SOFR rate? SOFR stands for Secured Overnight Financing Rate. It’s a standard financial index used in the U.S. to price loans and derivatives. The SOFR rate varies as economic conditions change.

As the 1-month SOFR rate changes each month, your variable rate goes up or down accordingly which changes your monthly payment. Keep in mind that lenders can’t control the benchmark, so they can’t change your rates just because they feel like it.

In addition, if the rate starts to climb too high you might be able to refinance and switch to a fixed rate to prevent it from increasing in the future—just be aware that fixed and variable rates often move in the same direction, so your fixed rate will be higher as well.

Which Type of Loan is Right for Me?

Now that you understand the difference between your fixed and variable rate options, you want to ask yourself:

How much lower does the variable interest rate need to be, compared to your best fixed interest rate option, to be worth the risk of a fluctuating rate?

In answering this question it is helpful to remember that the answer will change based on how long your repayment term is and if you plan to refinance in the future. For example, if you are a current student taking out a loan and you plan to refinance after graduation (in 1-3 years), the risk of a variable loan lowers. Note that your ability to refinance your loan is not guaranteed.

You should also consider your personal tolerance for that risk and what you think the benchmark will do over time.

In Summary, fixed rates are generally the safest option for most folks, and the most popular option as well. Variable can make sense in certain cases, depending on your risk tolerance and time horizon for refinancing.