When choosing between a fixed or variable interest rate loan, consider the loan term, how much you value budget predictability, and the current interest-rate environment.
A fixed-rate loan has the same interest rate and monthly payment throughout the life of the loan. Borrowers, especially those with longer loan terms, may prefer a fixed rate because it offers predictable monthly payments and protection against future interest rate increases. However, fixed rates may initially be higher than variable rates.
The variable interest rate on Earnest loans will be based on the 30-Day Average Secured Overnight Financing Rate (SOFR) as published by the Federal Reserve Bank of New York on the twenty-fifth day, or the next business day of the preceding calendar month, and using the daily interest rate based on actual days in the year and rounding up. The SOFR will then be added to your base rate to set the effective rate beginning on the 1st of the following month. This means that your monthly payment can change, as interest rates change since your minimum rate and minimum payment are not locked in as they would be with a fixed interest rate. For more information on SOFR and its historical data, please feel free to check out this article here.
We place caps on our clients' effective variable rates to protect them in the event of extreme SOFR changes. Currently, refinance interest rate caps range from 8.95% for a five-year loan term to 11.95% for a twenty-year loan term. The interest rate cap for Private Student Loans is up to 36%. Your effective variable interest rate will not exceed the applicable cap, even if market interest rates rise beyond that limit.
To explore how different rates would affect your monthly payment, check out our refinance rate calculator here. Additionally, the Earnest Resource Center page provides educational guides and financial tools designed to help our clients lower student loan payments, consolidate high-interest debt, and plan for college expenses.