Should you refinance federal student loans?

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Refinancing your student loans could save you money, especially if you qualify for a lower interest rate. However, while there are few downsides to refinancing private loans, refinancing federal student loans isn’t always the best choice; by doing so, you’ll give up valuable protections, like access to income-driven repayment plans. What’s more, federal student loans currently have no interest charges and no required payments through Sept. 30, 2021, due to the coronavirus pandemic, so in most cases it’s best to avoid refinancing now.

Key takeaways

  • Refinancing can only be done through private lenders, which don’t offer as many protections as the federal government.
  • Refinancing federal loans now will cause you to lose eligibility for coronavirus relief measures.
  • If you do choose to refinance, it pays to shop around with a few lenders first.

What is student loan refinancing?

Student loan refinancing is the process of taking out a new loan with a private student loan lender to pay off all or some of your existing student loan debt. It changes your loan terms, including your interest rate. If you’ve worked to improve your credit scores, you might qualify for a lower interest rate when you refinance, which could save you money each month and over the life of your loan.

Refinancing is different from consolidation. Student loan consolidation is offered through the federal government instead of through private lenders. With this program, you may combine multiple federal student loans into one Direct Consolidation Loan and potentially change your repayment timeline, although your interest rate will be the weighted average of all of the loans you’re consolidating. Because of this, you may increase the total amount of interest you pay overall with a lengthier repayment term.

Can you refinance federal student loans?

It is possible to refinance federal student loans, but doing so means switching from a federal student loan to a private student loan. Because refinancing is not offered by the federal government, you’ll need to research lenders on your own — including banks, credit unions and online lenders. These lenders may caution you against refinancing federal loans, since you’ll lose a number of federal benefits in doing so, but generally private lenders will refinance any type of student loan. You can even refinance federal loans and private loans together.

Should you refinance your federal student loans?

With federal student loans, you should never refinance without first understanding the benefits you’ll give up by doing so. Perhaps the most important benefits you’ll forfeit if you refinance federal student loans with a private lender are income-driven repayment plans and Public Service Loan Forgiveness (PSLF). These plans could drastically reduce your monthly payments in tight financial times, and both forgive any remaining loan balances after a designated repayment period — 10 years for PSLF and 20 to 25 years for most income-driven repayment plans.

Also remember that most federal student loan borrowers can currently enjoy coronavirus payment relief, which waives interest and suspends payments on federal student loans through Sept. 30, 2021. If you refinance now, you’ll have to immediately begin making payments again. And if any of President Biden’s loan forgiveness proposals pass, canceled student loan debt will most likely only apply to federal student loans.

If you’re still on the fence, use a student loan calculator to crunch the numbers and see how much you could save by refinancing. You can always refinance later this year when federal coronavirus relief expires and interest charges resume.

Pros and cons of refinancing federal student loans

Before you apply to refinance your student debt, consider both the benefits and the drawbacks.


  • Lower interest rate. If you took out your federal student loans when interest rates were high, refinancing into a private student loan could save you hundreds of dollars. This is especially true if you have good credit and can qualify for the lowest advertised rates.
  • Different repayment timeline. Federal student loans are automatically placed on a 10-year repayment timeline. By refinancing, you could choose a shorter timeline in order to save on interest or a longer one to lower you monthly payments.


  • No access to income-driven repayment. Income-driven repayment programs adjust your monthly payments based on how much discretionary income you have, a benefit that private lenders lack.
  • Few defined deferment or forbearance programs. The federal government has established deferment and forbearance options for borrowers. While private lenders may offer hardship programs, they’re usually determined on a case-by-case basis.
  • Forfeit pandemic relief benefits. Some private lenders established coronavirus hardship options early on in the pandemic, but for many, that relief has already expired. The federal government, on the other hand, continues to waive interest and payments on federal loans through September.

How to refinance federal student loans

If you decide to refinance your federal student loans, you’ll want to carefully plan out the switch. Here’s how to get started:

  1. Research lenders. Different lenders cater to specific borrowers, such as borrowers with low credit scores or borrowers refinancing medical school debt. Look for the lenders that will fit best with your situation and compare interest rates, terms and fees.
  2. Get prequalified. Once you have narrowed down your search to two or three top choices, get prequalified with each of them to find out which will give you the best rate. Prequalification does a soft pull of your credit score to determine what you qualify for and is the best way to compare your options.
  3. Send in an application. After you’ve been prequalified with a lender, you can submit a full application. During this process, you’ll usually have to provide some form of ID, financial information and employment verification.
  4. Begin payments. Once you’re approved, your new lender will most likely pay off your old loans directly. Payments to your new lender will start immediately. Take time to get to know how payments work, when they will be due and any other other important details you will need to manage your loans with the new lender.

Other ways to pay off federal student loans

Refinancing to a new, lower-rate loan is a common strategy borrowers use to pay off their student debt sooner. But there are other ways to pay down federal student loans as well.

  • Student loan forgiveness: Depending on your situation, you might qualify for full or partial forgiveness of your federal student loan debt. The programs aren’t necessarily easy to navigate, but they can save some borrowers thousands of dollars.
  • Extra payments: A solid strategy you can use to pay off your federal student loans or any other debt is to make extra payments. Using any extra funds to pay more than you owe each month can help you reduce your principal quicker and save on interest.
  • Autopay discounts: Many student loan servicers will give you a small discount each month when you sign up for automatic payments. If you apply the savings toward extra payments, that small discount can add up over time and help you eliminate your student debt a little faster.
  • Employer student loan assistance: Some employers offer student loan assistance as an employee benefit. If you’re looking for a new job, keep your eyes open for such offers or see if you can negotiate student loan assistance as a part of your new benefits package.
  • State repayment assistance: Some places, like Maine and parts of Iowa, will pay a portion of your student loans if you move there. While you’ll have to meet specific eligibility requirements, you could knock out a significant portion of your debt.

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Written by
Emma Woodward
Contributing writer
Emma Woodward is a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet.
Edited by
Student loans editor