Fixed vs Floating Rates: The hidden education loan choice parents often miss

Most Indian families chasing higher education dreams through loans focus primarily on the headline interest rate. But beneath that single number lies a complex financial decision that could impact them for years—whether to opt for a fixed or floating interest rate loan.

At first glance, the difference seems easy to grasp. Fixed-rate loans offer predictability—monthly EMIs remain unchanged over the loan’s tenure. Floating-rate loans, however, shift with changes in external benchmarks like the RBI’s repo rate or the U.S. Fed funds rate, making them susceptible to market volatility.

Yet assuming one option is better than the other is a mistake, say experts.

“A 100-basis point rise in the base rate can push monthly payments up by 5–10%, which could stretch a family’s finances,” says Ankit Mehra, CEO and Co-founder of GyanDhan, an education financing platform. “On the other hand, when rates fall, floating-rate loans can become significantly cheaper over time.”

Education loans often span 7–15 years, long enough for borrowers to experience multiple shifts in the interest rate cycle. But predicting how rates will move is no easy task. Even seasoned economists struggle to forecast rate trajectories with confidence.

“For the average borrower, who may not have access to detailed economic insights or the expertise to interpret them, anticipating rate changes becomes even more challenging,” Mehra explains. “So, choosing between fixed and variable rate loans often involves a degree of guesswork and risk management, rather than certainty.”

Currently, the interest rate environment looks favourable to floating-rate borrowers. The U.S. Federal Reserve projects a softening of the federal funds rate to 3.9% in 2025, 3.4% in 2026, and 3.1% in 2027. In India, the repo rate was trimmed to 5.5% in June 2025, which lowers borrowing costs and improves affordability.

Bottom line: Rather than focusing solely on the interest rate offered, families need to weigh risk tolerance, income stability, and tenure before choosing a loan. What looks cheaper today could turn expensive tomorrow—and the fine print matters more than most realise.