What is an Interest Rate Lock?

An interest rate lock (or "rate-lock," "rate commitment") is an agreement from a lender to guarantee a specific interest rate (and sometimes other terms like points or fees) for a set period, typically while your loan application is being fully processed and finalized. This is most common with private student loans or when refinancing existing student loans with a private lender.

If you lock a rate, the lender commits to honoring that rate even if general market interest rates rise during your lock period, provided you meet all conditions (e.g., close the loan by the expiration date, no significant changes to your application like credit score or income).

Pros of Locking a Rate:

• Protection Against Rising Rates: If market rates increase after you lock, your rate remains unchanged, potentially saving you money.
• Certainty & Predictability: Knowing your rate helps you budget and plan for your loan payments with more confidence.
• Peace of Mind: Reduces the stress of watching daily rate fluctuations while your loan is processed.

Cons of Locking a Rate:

• Missing Out on Falling Rates: If market rates decrease after you lock, you might miss the opportunity for a lower rate (unless the lender offers a "float-down" option, which may have a fee).
• Expiration Dates: Rate locks are valid for a specific period (e.g., 30-90 days). If your loan doesn't close by then, the lock may expire, and you might face a different rate or extension fees.
• Potential (Rare) Fees: While less common for student loan refinances than mortgages, some lenders might charge for longer lock periods or extensions. Always ask.
• Commitment (Soft): Locking a rate might imply a stronger intent to proceed with that lender, though you can usually still back out (check terms).

Key Questions to Ask Your Lender About Their Rate Lock Policy:

• Is there a fee to lock my rate? If so, how much?
• How long is the rate lock period?
• What happens if the rate lock expires before my loan closes? Can it be extended, and is there a fee?
• What specific conditions could cause my locked rate to change (e.g., changes to my credit score, income verification issues, loan amount changes)?
• Do you offer a "float-down" option if market rates decrease after I lock? Is there a fee for this?
• Can I get the rate lock agreement in writing?

Note on Federal Student Loans:

Interest rates for new U.S. Federal Direct Loans (Subsidized, Unsubsidized, PLUS) are fixed by Congress and set annually (typically effective July 1st). This process doesn't involve individual "rate locks" in the same way private loans do. Once you take out a federal loan, the rate is fixed for the life of that loan. Federal Direct Consolidation Loans also result in a new fixed rate based on a weighted average.