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Private education loan interest rates are based on either of two major interest rate indexes:

• LIBOR is an acronym for the London Interbank Offered Rate. It is a variable rate index based on the average interest rate paid on deposits of US dollars in the London market. Private education loan interest rates are typically based on either the 1-month or 3-month LIBOR.
• PRIME rate refers to the Prime Lending Rate. It is the interest rate that a bank charges its most credit-worthy customers. It is largely based on the federal funds rate, which is the overnight rate that banks charge either other for lending.

Lenders typically use either of these indexes as the base for the interest rate and add points to set up interest rates tiers according to credit worthiness. Private education loans interest rates are almost all variable. Therefore, interest rates may change over the course of a specific year and within the life of the loan. See the Consumer Financial Protection Bureau’s guidance about APR.