Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
Refinancing federal student loans can either help you pay down your loans sooner (by shortening your term) or lower your monthly payment (by extending your term). However, when you refinance federal student loans with a private lender, you lose federal benefits and protections.
Refinancing is not a simple decision. Keep reading to learn more about federal student loan refinancing and whether or not it’s right for you.
What Is Federal Student Loan Refinancing?
If you graduated with student loans, you may have a combination of private and federal student loans. The latter are loans funded by the federal government. Direct Subsidized Loans and Direct PLUS Loans are both examples of federal student loans.
Interest rates on federal student loans are fixed and set by the government annually. The current rate for the 2024-25 school year is 6.53% for undergraduate students. Private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally lower — interest rate.
Recommended: Types of Federal Student Loans
Can I Refinance My Federal Student Loans?
It is possible to refinance federal student loans with a private lender. However, you lose the benefits and protections that come with a federal loan, like income-based repayment plans and public service-based loan forgiveness. On the plus side, refinancing may allow you to pay less interest over the life of the loan and pay off your debt sooner.
💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
How Are Refinancing and Consolidation Different?
Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re signing different terms on a new loan to replace your old student loan(s).
Consolidation takes multiple federal student loans and bundles them together, allowing borrowers to repay with one monthly bill. Consolidation does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, rolls your old federal and private loans into a new private loan with a different loan term and interest rate.
When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest one-eighth of a percent. This means you don’t usually save any money. If your monthly payment goes down, it’s usually the result of lengthening the loan term, and you’ll spend more on total interest in the long run.
When you refinance federal and/or private student loans, you’re given a new interest rate. That rate can be lower if you have a strong credit history, which can save you money. You may also choose to lower your monthly payments or shorten your payment term (but not both).
Recommended: Student Loan Consolidation vs Refinancing
What Are Potential Benefits of Refinancing Federal Student Loans?
Potential Savings in Interest
The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan.
Plus, you may be able to switch out your fixed-rate loan for a variable rate loan if that makes more financial sense for you (more on variable rates below).
Lower Monthly Payments
You can also lower your monthly payments. That typically means lengthening your term and paying more in interest overall. (Shortening your term usually results in higher monthly payments but more savings in total interest.)
Streamlining Repayments
Refinancing multiple loans into a single loan can help simplify the repayment process. Instead of multiple loan payments with potentially different servicers, refinancing allows you to combine them into a single monthly payment with one lender.
What Are Potential Disadvantages of Refinancing Federal Loans?
When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:
Deferment / Forbearance
Most federal loans will allow borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, while unsubsidized loans will still accrue interest.
Student loan forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance — check your lender’s policies before refinancing.
Special Repayment Plans
Federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make payments based on your discretionary income. It’s important to note that these plans typically cost more in total interest over the life of the loan. Private lenders do not offer these programs.
Another plan called REPAYE was phased out and replaced by the SAVE Plan, which promises to cut payments in half for low-income borrowers. According to the Department of Education, SAVE is the most affordable repayment plan, with some borrowers not having to make payments at all.
Student Loan Forgiveness
The Supreme Court has blocked President Joe Biden’s mass forgiveness plan for federal student loan borrowers. However, other loan forgiveness options are still available.
• Public Service Loan Forgiveness (PSLF). Teachers, firefighters, social workers, and other professionals who work for select government and nonprofit organizations may apply for this program. Changes made by the Biden Administration will make qualifying easier — even for borrowers who were previously rejected. Learn more in our guide to PSLF.
• Teacher Loan Forgiveness. This program is available to full-time teachers who complete five consecutive years of teaching in a low-income school. Find out more in our Teacher Loan Forgiveness explainer.
• Income-Based Repayment Plans. With some repayment plans, you may be eligible for forgiveness if your student loans aren’t paid off after 20 to 25 years (and in some cases under the new SAVE plan, after 10 years).
Private student loan holders are not eligible for these programs.
| Potential Advantages of Refinancing Federal Student Loans | Potential Disadvantages Refinancing Federal Student Loans |
|---|---|
| Interest Rate. Opportunity to qualify for a lower interest rate, which may result in cost savings over the long term. Option to select variable rate, if preferable for individual financial circumstances. | Loss of Deferment or Forbearance Options.These programs allow borrowers to temporarily pause their payments during periods of financial difficulty. |
| Adjustable Loan Term. Get a lower monthly payment, usually by extending the loan term, which could make loan payments easier to budget for, but may make the loan more expensive in the long term. | Loss of Federal Repayment Plans.No longer eligible for special repayment plans, such as income-driven repayment plans. |
| Get a Single Monthly Payment.Combining existing loans into a new refinanced loan can help streamline monthly bills. | Loan Forgiveness.Elimination from federal forgiveness programs, including Public Service Loan Forgiveness. |
When Should You Consider Refinancing Your Student Loans Again?
You can refinance your student loans for a second time, and in fact, there is no limit to how many times you can refinance. Each time you refinance, you essentially take out a new loan to pay off the old one, ideally with better terms. However, it’s crucial to ensure that refinancing again is beneficial for your financial situation. Here are some key considerations:
Improved Financial Situation
• Credit Score: If your credit score has improved, you may qualify for a lower interest rate.
• Income: A higher or more stable income can make you eligible for better loan terms.
• Debt-to-Income Ratio: A lower ratio can also help secure more favorable terms.
Market Conditions
• Interest Rates: If market interest rates have decreased since your last refinancing, you might get a better rate.
• Promotional Offers: Keep an eye out for new promotional rates or special offers from lenders.
Loan Terms
• Shorter Terms: Refinancing to a shorter loan term can reduce the overall interest paid.
• Extended Terms: If you need lower monthly payments, extending the loan term can provide relief, though it may increase the total interest paid over the life of the loan.
• Consolidation: Refinancing multiple loans into one can simplify your payments and possibly offer better terms.
FAQs on Refinancing Your Federal Loans
Who Typically Chooses Federal Student Loan Refinancing?
Many borrowers who refinance have graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates than federal student loans for undergraduates.
In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.
Do I Need a High Credit Score to Refinance Federal Loans?
Generally speaking, the better your history of dealing with debt (illustrated by your credit score), the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit scores as part of their analysis, however, it’s not the single defining factor. Underwriting criteria vary from lender to lender, which means it can pay to shop around.
For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. Check here for current eligibility requirements.
Are There Any Fees Involved in Refinancing Federal Loans?
Fees vary and depend on the lender. That said, SoFi has no application or origination fees.
💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Should I Choose a Fixed or Variable Rate Loan?
Most federal loans are fixed-rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable rate loan.
Here’s what you should know:
Fixed Rate Refinancing Loans Typically Have:
• A rate that stays the same throughout the life of the loan
• A higher rate than variable rate refinancing loans (at least at first)
• Payments that stay the same over the life of the loan
Variable Rate Refinancing Loans Typically Have:
• A rate that’s tied to an “index” rate, such as the prime rate
• A lower initial rate than fixed rate refinancing loans
• Payments and total interest costs that change based on interest rate changes
• A cap, or maximum interest rate
Generally speaking, a variable rate loan can be a cost-saving option if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.
What Happens If I Lose My Job or Can’t Afford Loan Payments?
Some private lenders offer forbearance — the ability to put loans on hold — in cases of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. For policies on disability forbearance, it’s best to check with the lender directly, as this is often considered on a case-by-case basis.
Do Refinance Lenders Allow Cosigners / Cosigner Release?
Many private lenders do allow cosigners and some allow cosigner release options. SoFi allows cosigners, but no option for cosigner release for refinanced student loans. However, if you have a cosigner and your financial situation improves, you can apply to refinance the cosigned loan under your name alone.
The Takeaway
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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