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How to Manage Variable, Rising Student Loan Interest Rates

Cody Cobb

For student loan borrowers, the interest rate is one of the key factors determining how much money will ultimately be paid back. But unfortunately, it's not always something that you have much control over.

If you've taken out a federal student loan, then variable interest rates probably aren't something you have to worry about, since, as of 2006, all federal student loans have fixed rates. That means the interest rate stays the same over the life of the loan. But if you have a private student loan, then your rates may or may not be variable depending on the type of student loan and the terms that you agree to at the beginning.

Variable interest rates tend to start lower and then increase over the life of the student loan depending on economic conditions. They tend to be based on the London Interbank Offered Rate, known as Libor, and can change on a monthly, quarterly or annual basis. Therefore, for borrowers seeking something more secure, federal student loans and private loans with fixed interest rates tend to be safer bets.

[Read: How Fed Interest Rate Increases Affect Student Loans.]

If you've already taken out a private student loan with variable interest rates and your rates have started to increase, don't despair. There are a few different ways that you can handle it:

-- Pay off your student loan faster.

-- Try to lower your interest rate.

-- Refinance your student loan.

Pay off your student loan faster. Use rising interest rates as motivation to increase your payments and get out of debt sooner. If you have both variable and fixed interest rates, try to put extra payments toward your variable-rate student loan and prioritize paying it off first.

If your current income doesn't allow you to increase your payments, then take a good look at your expenses each month and see where you can cut back. Set a budget for yourself. You could also pick up a side hustle like driving for Uber, dog walking or renting out a spare bedroom in your home.

[Read: Reduce Student Loan Debt by Paying Interest Early.]

Even if you put just an extra $20 per month toward your student loan, it could make a big difference over the life of your loan.

Try to lower your interest rate. You might also want to see if your lender can lower your rate at all or switch your variable-rate loan to a fixed-rate loan. If you've been making regular, on-time payments, you might have a bit more leverage to negotiate.

While there's no guarantee that anything will happen, it doesn't hurt to ask.

Refinance your student loan. If the interest rate on your private student loans has been rising and you're not able to pay off the debt quickly or seem to make a dent in it, it might be best to refinance your student loan to one with a fixed rate.

With refinancing, you take out a new student loan from a private lender and then use it to pay off your old student loan. You can choose between a variable and fixed interest rate and decide on new repayment terms. If you have good credit, or apply with a co-signer who does, your interest rates could be significantly lower than they are now.

[Read: How to Prepare and Qualify for Student Loan Refinancing.]

The other benefit to refinancing is that you can do it as many times as you want or need if you qualify for a new loan. So if you refinance your student loan now, and then later, your credit score goes up or rates go down, you could look into refinancing again for better rates.

If you have a federal variable-rate student loan, meaning one that was taken out before 2006, you could look into refinancing it into a private student loan with a fixed rate through a private lender. But keep in mind that you'll then miss out on the advantages of federal student loans, such as income-based repayment plans and deferment options.

For student loan borrowers dealing with rising interest rates, there are options out there to deal with this. Do what you can to lower your student loan interest rate to something manageable. Otherwise, you could end up paying an astronomical amount of interest over the life of your student loan.

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