Refinancing a student loan is one option for borrowers seeking relief from existing student loan payments. This could result in reduced monthly payments, higher interest rates, and more manageable monthly payments. But that’s not the best choice for anyone, especially borrowers with federal loans. It’s worth considering all the options before proceeding with refinancing your student loan.
Can I refinance a federal student loan?
You can refinance federal student loans, but they are not always recommended. Refinancing a federal student loan will take a new loan with a private lender to pay off all or part of your existing student loan debt. Your refinance federal loan will be a private student loan. This means losing federal benefits such as certain protections, access to income-driven repayment plans, and forgiveness of potential loans.
Refinancing a federal student loan is a great way to reduce monthly expenses, but there are trade-offs. Before refinancing a student’s debt, make sure you understand the process and fine print you want to keep an eye on.
Pros and cons of refinancing federal student loans
Refinancing your federal student loan may come with some benefits, but there are many other sacrifices. No matter what you give up first, don’t refinance your federal loan.
The advantages of refinancing
- Low interest rates. If you take away your federal student loans when interest rates are high, you can save thousands of dollars by refinancing for a private student loan. This is especially true if you have a good credit and qualify for the lowest advertised fee.
- Different repayment timelines. Unless you apply for a different repayment plan, federal student loans will automatically be placed on your 10-year repayment timeline. When you have a refinance, you can choose a shorter timeline to save interest or a longer timeline to lower your monthly payments.
- Combine multiple loans. If you have loans from multiple lenders, refinance can help you bundle all your accounts into one. This makes it easier to manage your debt.
Cons of refinance
- There is no access to income-driven repayments. Income-driven repayment plans adjust monthly payments to 10-20% of your discretionary income.
- There is no loan forgiveness program. Some federal borrowers are eligible for public service loan exemptions. This allows the remaining loan balance after 10 years of eligible payments. Even if you meet the requirements, you will lose this profit if you refinance.
- There were few defined deferral or tolerance programs. The federal government has established options for postponement and tolerance for borrowers. Private lenders may offer hard work programs, but usually it is determined on a case-by-case basis.
- Lose potential relief options. During the national crisis, governments may offer relief options just as they did during the coronavirus pandemic. Private lenders may not.
Time to refinance a federal student loan
Refinancing a federal student loan in most cases doesn’t make sense, but it may be worth considering. Kristen Afflenius, a certified financial counselor and director of education at your money line, tells you to ask yourself the following before refinancing your federal loan:
- Is your household income stable? “Suppose you experience a cut or loss in your income, or even go back to school, and you’re guaranteed greater flexibility in federal space than private lenders,” says Ahlenius. “Of course, private lenders may offer some options, but these options are not standardized.”
- Isn’t the Loan Forgiveness Program an option? Loan exemptions are available to some borrowers who work for nonprofits or government organizations. “We recommend that forgiveness is available only with qualification loans that do not include private student loans,” Affrenius says. “Before refinancing, make sure you are not or are not eligible for other opportunities for forgiveness.”
How to refinance federal student loans in 2025
When deciding to refinance a federal student loan, you need to find the best interest rates, lenders and loan term to suit your financial situation. Here’s how to get started:
- Research lender. Some lenders cater to certain borrowers, such as borrowers with low credit scores or borrowers who refinance medical school debts. Find the best lender for your situation and compare interest rates, conditions and rates. If you’re not sure where to start, you can always use lending market help such as Lendkey. This allows you to compare offers from multiple lenders.
- Get prequalified. Once you’ve narrowed your search to two or three options, you’ll prequalify for each and decide which one will give you the best rate. Prequalification is the best way to softly withdraw your credit score to determine which interest rates qualify and compare options.
- Submit the application. After you have qualified in advance with the lender, you can submit your full application. During this process, you will usually need to provide some form of ID, financial information, and employment verification.
- Payment begins. Once your application is approved, the new lender will repay the old loan directly. You will need to start paying your new lender immediately. Take your time to learn how your payments work, when it will be due, and other important details you will need to manage your loan with a new lender.
Refinance and consolidation of federal student loans
People use the terms “refinance” and “integration” interchangeably, but they are different.
Refinances are only made through private lenders and may change interest rates, repayment periods, and even lenders, including loan details. This often means you can get a lower or lower monthly payment.
Student loan consolidation is provided through the federal government. Using this program, you could combine multiple federal student loans into one direct consolidated loan and change your repayment timeline. Consolidating your loans may provide you with access to more repayments and loan exemption options.
Your interest rate is a weighted average of all the loans you are consolidating, so consolidation doesn’t necessarily save you money. If you choose a long repayment period after consolidation, you can pay more on full interest over the life of the loan.
Other ways to pay back federal student loans
Refinancing for a new low-rate loan is a common way for borrowers to pay off student debts faster, but that’s not the only way. Other options are:
- Extra payment. If you want to pay off your student loans quickly, you pay more monthly. Start tracking your expenses and wind down towards your debt. Paying off your loan faster can also help you pay less interest.
- Autopay discount. All federal student loan services offer a monthly discount of 0.25% when you sign up for automatic payments. Applying savings to additional payments will add that small discount over time, helping to eliminate student debt a little faster.
- Employer student loans support. Some companies offer student loan assistance as employee benefits. If you are looking for a job, look for a position that offers this benefit, or see if you can negotiate student loan assistance as part of your new benefits package.
- State repayment support. Some places like Maine will pay a portion of your student loan if you move there. You must meet certain eligibility requirements, but you can knock out most of your debt.
- Student loan forgiveness. Depending on your situation, you may be entitled to full or partial forgiveness of your federal student loan liability. To qualify for forgiveness on a loan, you must meet certain criteria, but you can save thousands of dollars on a loan.
Conclusion
Refinancing a student loan is just one option for borrowers in repayment. Before you move forward with refinancing, consider all the options to pay back your federal student loans. If you choose that repayment pass, make sure that profits outweigh such costs, such as monthly payments and lower interest rates, losing income-driven repayment options and putting potential loan forgiveness at risk.
