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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.

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If you’ve found yourself worrying about money lately, you’re not the only one. Nearly half of Americans say 2024 has been the most stressful year of their lives financially, often citing high costs for essential goods like food, according to a May 2024 poll of 2,000 adults by MarketWatch Guides . Nearly nine in 10 respondents (88%) reported feeling financial stress, with 65% saying their finances are the most stressful aspect of their life.

Many of today’s financial stressors are out of our control — like inflation and high mortgage rates. Even so, there are actions you can take to manage money-related anxiety. Here, you’ll learn steps you can take to tackle financial goals despite challenging times.

What Is Financial Anxiety?

It’s normal to worry about money from time to time, but if you are continually worrying about bills, your money worries keep you up at night, and/or you find it difficult to face your financial situation head on and come up with solutions, you may be dealing with financial anxiety.

Financial anxiety is defined as an intense fear or discomfort caused by things related to money, such as debts, expenses, investments, income, savings, or adverse economic situations. This type of anxiety can affect anyone, regardless of their income or financial status, and it can often be debilitating.

Like other forms of anxiety, financial anxiety can interfere with everyday life and affect your mental and physical well-being, leading to depression, loss of appetite, insomnia, an inability to focus, and even cardiovascular and other medical problems.

Can You Overcome Financial Anxiety?

Yes, it’s possible to overcome financial anxiety with the right strategies and mindset. Overcoming this issue involves understanding the root causes of your anxiety, developing a proactive approach to managing your finances, and seeking support when needed. While financial anxiety may not disappear entirely, you can learn to manage it effectively and reduce its impact on your life.

7 Ways to Deal With Financial Anxiety

While there’s no one-size-fits-all solution to money stress, there are strategies that can help you feel more in control of your finances. Consider trying one or more of these tips, and see what works best for you.

1. Tackle One Decision (or Problem) at a Time

Financial anxiety can be paralyzing when you try to address all your financial concerns at once. A good first step to reducing financial stress is to figure out what’s making you feel most anxious. Is it your spending, your student loans, your mortgage, or saving for the future? Then focus on tackling one decision or problem at a time.

It can also be helpful to break down larger financial goals into smaller, manageable tasks. For instance, if you’re worried about debt, start by creating a plan to pay off the smallest debt or the highest-interest loan first. Gradually addressing each issue can help you feel more on top of your money and reduce overall stress.

2. Create a Budget

A major facet of money stress can involve feeling out of control in terms of your finances. There’s a simple solution to that: making and sticking to a budget. A budget allows you to see exactly where your money is going and helps you make informed decisions about your spending.

While budgeting may sound like an overwhelming process, it simply involves looking at your income and spending over the last several months, categorizing your spending, and (if necessary) identifying areas where you can cut back. There are all different ways to allocate your money, but one simple framework is the 50/30/20 budget. It recommends putting 50% of your after-tax income toward needs, 30% toward wants, and 20% toward savings and debt repayments beyond the minimum.

Having a clear financial plan can provide a sense of control and reduce uncertainty about your financial future.

3. Prepare for the Unexpected With an Emergency Fund

One great way to allay financial stress is to know that you have some back-up funds when or if you need them. Should life throw you a financial curveball (like a major car repair, unexpected medical bill, or loss of income), having a solid emergency fund you can tap means you won’t have to run up expensive debt to cope.

A general rule of thumb is to keep at least three to six months’ worth of living expenses stored in a separate savings account (ideally a high-yield savings account). And since you already created a budget, you know how much, on average, your necessities cost each month.

Keep in mind that you don’t have to build your emergency fund overnight. It’s okay to start small; even setting aside $50 to $100 a month can add up over time. Consider setting up an automatic transfer on payday from checking to a linked savings account so you aren’t tempted to spend that amount.

Recommended: How to Build an Emergency Fund in Six Steps

4. Deal With Debt

Even in the best of times, debt can cause worry and stress. It may feel like a weight that is always hanging over you. And inflation and high interest rates (ouch) can make the anxiety more intense.

If you have debt that is causing you stress, it’s a good idea to take steps to reduce it — think of it as a form of financial self-care. Start by listing all your debts, including the interest rates and minimum payments. Then consider using strategies like the debt snowball method (paying off the smallest debt first) or the debt avalanche method (paying off the highest interest debt first). You may also want to explore options for consolidating or refinancing your debt to reduce interest rates and monthly payments.

5. Just Say No to Splurging

When we’re stressed, there are a lot of ways to relax or blow off steam — and many of them cost money. Retail therapy, a big night out, a weekend getaway: Sure, they are all wonderful, but if you are dealing with financial stress, they may not be good options. They can add to any debt you are carrying, give you less cash for daily life, and lead to more financial stress.

Here are some tips that can help you develop better spending habits:

•   Don’t window-shop or pit-stop at your favorite stores. That’s just putting temptation in your path.

•   If you see something you feel you must have, even though it’s not a true need, wait for a while (anywhere from 24 hours to 30 days) before buying it. You may find that the urge cools.

•   Set aside some “fun money” in your budget for low-cost treats. Some ideas: getting a fancy coffee on Friday morning to reward yourself for a week of hard work; taking yourself to the beach one afternoon; climbing a mountain and savoring the view; getting a 10-minute massage at a nearby spa.

6. Add a Second Income Stream

Sometimes it’s not about subtracting spending from your daily life, but rather, about adding more cash to your pocket. There are many benefits to a side hustle: Picking one that fits into your current lifestyle without taking up too much of your free time can really add value to your wallet and your life.

Before choosing a gig, think about what you’d like to do. You might be able to freelance as a writer or social media consultant. Or perhaps you can sell your suitable-for-framing travel photos online. If you enjoy driving around on weekends, you might sign up with a ride-sharing app. Love animals? Consider starting a dog-walking service.

If you don’t have time to take on additional work, you might sell items you own that are in good condition but you no longer need. There are dozens of places to sell your stuff: For clothes, try a local second-hand store near you, such as Crossroads or Buffalo Exchange. For furniture and other goods, try listing on eBay, Etsy (yes, it’s for more than crafts), Facebook Marketplace, or Nextdoor.

7. Reframe Your Financial Stress

Changing the way you think about financial stress can help manage anxiety. Instead of viewing financial challenges as insurmountable obstacles, try to see them as opportunities for growth and learning. Focus on the progress you’ve made rather than the setbacks. Practicing gratitude for what you have and acknowledging your efforts can shift your mindset and reduce anxiety.

It can also be helpful to talk to those close to you. Let them know you are dealing with financial stress, and ask how they manage theirs. Talking about your worries can help put them into perspective. And in addition to getting reassurance and comfort, you may learn some new strategies.

Getting Help for Your Financial Anxiety

If you’re having trouble sorting out your finances and managing your anxiety on your own, it can be worthwhile to seek outside help.

For practical solutions to money issues, you might seek out a financial advisor. These professionals can offer advice on savings, investments, and retirement planning tailored to your financial situation, helping you develop a strategy to achieve your financial goals.

If your money anxiety is more deeply rooted or affecting your mental or physical health, you might want to consult a mental health professional, such as a psychologist, social worker, or financial therapist. These professionals can help you understand and work through the emotional aspects of your money worries and provide you with coping mechanisms to manage stress.

The Takeaway

Money worries can get the best of us, especially in challenging times, such as when inflation and interest rates are high and there’s talk of a potential downturn in the economy.

To manage financial stress, it’s wise to take steps to improve your cash situation — say, by budgeting, building up an emergency fund, and lowering high-interest debt. It’s also a good idea to work on your emotional wellness by tackling one problem at a time, avoiding temptation and the subsequent guilt, seeking support from those close to you and, if necessary, enlisting the help of a financial or mental health professional.

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

How do you stop being financially anxious?

There are a number of steps you can take to reduce financial anxiety. If you’re worried about debt or lack of savings, for example, you might want to assess and categorize your spending over the last several months, then look for places to cut back. Any money you free up can be redirected toward paying more than the minimum on your debts and/or building your savings.

Other ways to stop feeling financially anxious include: building an emergency fund (this provides a safety net for unexpected expenses); seeking advice from a financial advisor to develop a long-term plan; and practicing stress-reduction techniques, such as mindfulness, exercise, and adequate sleep.

Why do you get anxious about money?

Financial anxiety can stem from a number of factors, including:

•   A lack of control or understanding of your financial situation

•   Job insecurity

•   Inflation

•   Unexpected expenses

•   Insufficient savings

•   Cultural and societal pressures (i.e., the expectation to maintain a certain lifestyle)

•   Past financial mistakes or trauma

How do you stop obsessing about money?

You might start by setting some clear financial goals, and then creating a realistic monthly budget that can help you achieve those goals. This can reduce financial worries — and help you stop obsessing about money — by giving you a greater sense of direction and control.

Other ways spend less time thinking about money include:

•   Automating savings and bill payments.

•   Limiting the amount of time you spend reviewing your accounts to once or twice a month.

•   Engaging in hobbies and activities that bring you joy and distract you from financial worries or temptations to spend money.

•   Seeking support from friends, family, or a therapist if money worries persist.

•   Educating yourself about personal finance to build confidence and reduce fear stemming from the unknown.

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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