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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.

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.

SOSL-Q224-1920991-V1

Are you toying with the idea of opening a Christmas Club account? It may sound like a retro idea, but a Christmas Club (or Holiday Club account) is simply a short-term savings fund that can help you plan for and manage the annual spending blizzard. The strategy can be smart, since during the most recent season, consumers spent a whopping $964 billion, according to the National Retail Foundation.

Pacing yourself to save in advance of the holiday crush is great, but there can be pros and cons of a Christmas Club account. Learn the details here.

What Is a Christmas Club Account?

Christmas Club accounts started in 1909 at a Pennsylvania bank and are designed to help you save money for holiday expenses. They typically do not earn high interest but can help you pull back your purse strings when December comes along and avoid debt.

After making regular, scheduled contributions to the Christmas account, the money is withdrawn, typically in October, November, or December, depending on your bank’s rules. Christmas Club funds are transferred to your regular checking account with the bank or withdrawn in a check to cover your holiday expenses, be they toys, trimmings, or latke parties.

Saving in increments can be easier on your budget than scrambling for cash when Yuletide, Hanukkah, and Kwanzaa come around. It can also spare you from putting all those charges on your credit cards and having a high balance due.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

How a Christmas Club Account Works

When you sign up for a Christmas Club account, you start with a deposit. Rules and regulations vary by bank. Some require a minimum to start; others don’t. Some have no minimum balance requirement in person at a branch but need a $25 minimum for setting up a Holiday Club account online.

You decide the amount you want to contribute regularly. For instance, you might opt for $25 or $100 swept from your checking account into your Christmas account every week or every payday.

Historically, banks have charged fees for withdrawing money before the club account matures. That encourages consumers to leave their money there until holiday shopping time. Just be aware that if an emergency comes up, like a broken water heater, and you take the money out, you will get hit with a fee.

Reasons to Use a Christmas Club Account

There are several benefits to Christmas Club accounts that can make them a helpful financial tool. Here are some of the reasons why people open them:

•   To save for a predictable spend above and beyond your year-round monthly budget. Many of us try to celebrate the holidays on a budget. But the gifting/decorating/entertaining spree can still hit every winter. A club account plumps up a money cushion to help you avoid credit card debt.

•   To afford holiday travel. Most of us need extra dough, whether to rent a car to visit family or fly the kids home from college. To score the lowest airfare, car rental, and lodging costs, brush up on smart tips for finding travel deals. (If short-term savings won’t cover your trip, shop for the best travel loans with lower APRs, no compounding interest, and no fees.) Stashing funds in a club account, of course, is a viable solution.

•   To build up funds for other planned annual costs. Just because they are called Christmas Club accounts doesn’t mean they have to be used for holiday spending. Puzzling over how to save on spring break expenses or how to pay for your child’s summer sleepaway camp? In those cases, a club account can be golden.

Where Can You Find a Christmas Club Account?

Christmas Club accounts are most often available at smaller community banks and credit unions vs. banks with a national presence. You can open one in person at a branch or online at your bank’s website. (Search under savings accounts.) Often, the same banks that set up payroll direct deposit plans also offer short-term club accounts.

Christmas Club accounts are offered at credit unions all across America, from the Fidelity Bank and Trust in Iowa to the Pasadena Federal Credit Union in California, and in too many places in between to count.

Pros of a Christmas Club Account

If you’re trying to decide if a Christmas Club account is right for you, it’s worthwhile to consider the advantages of these accounts.

Simplifies the Process of Saving for the Holidays

Framing your holiday budget ahead of time can cut stress. Pacing yourself to save over months may be even better. If it helps, you can give these targeted accounts nicknames to keep your eye on the goal; say, “Christmas in Vermont” to “Kids’ Lego Fund.”

Alternative to Putting Holiday Purchases on Credit Card

Using Christmas cash can help you avoid overspending with credit cards. Once you turn to plastic, things can get out of control. You start hunting online for a scooter a child has her heart set on and then see an ad for the brown suede boots you’ve been wanting…ka-ching. Interest rates on credit cards are quite high, and you can be left with debt that takes a long time to pay off.

Recommended: How Does a Credit Limit Work?

Cons of a Christmas Club Account

It’s not all a winter wonderland; Christmas Club accounts can have downsides. Here are a few to consider.

Most Banks Have Saving Limits

Most Christmas Club accounts have a maximum dollar amount you can save. Some banks allow up to $5,000, but this number will vary. The cap might be less than what you’d like to save. If need be, consider opening a second Christmas club if the bank allows it or open an additional one at another bank, too.

Potential Fees for Early Withdrawal

If you need to get the money out before the set withdrawal date, you will most likely incur early withdrawal fees. These can vary. Find out what they are when you open your account.

Alternatives to Christmas Club Accounts

If you want to save money for the holidays but aren’t sure a Christmas Club account is right for you, consider these options.

•   Certificate of Deposit. A certificate of deposit (or CD) generally offers a higher interest rate than a savings account but comes with a term. The bank holds your money for anywhere from months to years, and you collect the interest when the CD matures at the end of the term. Since a CD will lock up your money for a specific amount of time (typically between six months and 18 months, but shorter and longer terms are available), you may need to plan this right to have funds available for holiday expenses.

•   Money Market Account. A money market account is an interest-bearing account that is federally insured and has competitive interest rates. It generally requires a higher opening deposit.

•   High-yield Savings Account. These high-yield bank accounts earn significantly more interest than standard savings; you may find the best rates at online banks. However, the accessibility of these funds can be a downside. We all know how tempting it can be to transfer money from savings to checking when an unexpected household expense or special occasion comes up.

•   Travel account. Like Christmas accounts, these savings accounts likely won’t pay great interest, but they help you save for your goal. You can pick where to keep travel fund savings, and then use the money to hop on a plane when the holidays roll around.

The Takeaway

Christmas Clubs (or Holiday Club accounts) can spur you on to save regularly for the winter holiday spend. Planning ahead reduces stress. What’s more, setting a savings goal can help you keep your eye on the limit and avoid credit card overspending. But beware of fees for early withdrawals and caps on total amount saved. In some cases, you might be better off with another savings vehicle, like a CD or money market account.

Another option is to stash cash in a high-yield account and earn more interest there.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do banks still do Christmas Club accounts?

Yes, community banks, smaller banks, and credit unions still offer Christmas Club accounts. Ask at your branch or search the bank’s website.

Are Christmas Club accounts worth it?

Christmas Club accounts generally have low interest rates. However, they can be worthwhile if they help you put money away regularly and thereby avoid a holiday spending blowout using credit cards.

Is there interest on Christmas Club accounts?

Yes, most accounts offer interest. The rates, though, tend to be lower than the interest rates for regular savings accounts, money market accounts, and certificates of deposit (CDs).

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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