Should I refinance my federal student loans?

Refinancing is one way to make your student loan payments more affordable. But since the U.S. Department of Education doesn’t offer refinance loans, the only way to refinance your federal debt is by going through a private lender. This process involves giving up key federal benefits like income-driven repayment plans, deferment and forbearance options, and potential eligibility for loan forgiveness. 

Still, refinancing federal student loans might make sense in certain situations: 

• You can’t (or don’t need to) take advantage of loan forgiveness options now or in the future.
• Your finances are stable and you don't expect a decline in income or financial hardships at any point.
• You can reduce your interest rate by refinancing.

Pros and cons of refinancing federal student loans

Pros 

• You may be able to reduce your interest rate: Your rate on your federal loans was set at the time you borrowed and will not change. Depending on your credit score and income, it may be possible to refinance with a private lender at a lower rate than you're currently paying.
• You can combine all your loans into one: You can’t include private student loans in a federal loan consolidation. So if you really want to combine your private and federal loans into one loan, refinancing with a private lender is the only way to do that.
• You can change loan servicers: If you aren't happy with the servicer assigned to you by the Department of Education, you can choose to shop around and find a loan provider you do like among the banks, credit unions, and online lenders that offer student loan refinancing.
• You can transfer Parent PLUS loans to your child: This allows you to shift the responsibility of repayment to your child, assuming they’re able to take over the loan payments. Your child will need to refinance the loan in their own name to facilitate this. 

Cons 

• You may not qualify for a lower interest rate: Your ability to get a lower refinance rate will depend mainly on your credit score and income. While it’s possible to refinance student loans with bad credit, you’ll often need a cosigner and will typically have to pay higher rates — meaning you may not be able to save money by refinancing federal student loans.
• You'll lose access to loan forgiveness: The government offers several options for student loan forgiveness, including Public Service Loan Forgiveness (PSLF) and forgiveness through income-driven repayment (IDR) plans. Private student loans don't offer forgiveness and wouldn't be included if the government acts to eliminate some student debt in the future.
• You’ll lose access to income-driven payments: With federal loans, you can choose from several different income-driven repayment plans, each of which sets payments at a percentage of your income and could result in payments as low as $0. Private student loan refinance loans typically do not offer payment plans based on income.
• You'll lose borrower flexibility: The Department of Education allows you to put loans into deferment or forbearance in many situations. Private lenders have more limited options and usually allow forbearance only for shorter periods of time (if at all). You can also change your payment plan throughout your repayment period with federal loans but generally not with private loans.

Related: Best Lenders To Refinance Student Loans in 2024

When should I refinance federal student loans? 

Refinancing federal student loans might be financially beneficial in the following situations: 

• You don’t qualify for federal loan forgiveness: If forgiveness through income-driven repayment and other federal programs like PSLF isn’t an option for you, refinancing might be financially beneficial. 
• You have great credit and your finances are stable: This is important because it ensures lower interest rates and more favorable loan terms, which could significantly reduce your total repayment amount. 
• You have high-interest federal student loans (such as PLUS loans): Refinancing Direct PLUS loans might be beneficial if a private lender is able to offer you a lower interest rate based on your credit and finances. 
• You want to transfer Parent PLUS loans to your child: Refinancing is the only way to shift the loan responsibility to your child, potentially under better terms. 

When should I NOT refinance federal student loans? 

Just because you can refinance federal student loans doesn’t mean you should. Refinancing federal student loans is usually a bad idea if: 

• Your job situation is unstable or your income might fluctuate in the future, making federal loan forbearance and deferment helpful options. 
• You can benefit from income-driven repayment programs to lower your monthly payments and access loan forgiveness now or in the future.
• You’re pursuing federal loan forgiveness through the Public Service Loan Forgiveness (PSLF) program or Teacher Loan Forgiveness (TLF) program. 

How to refinance federal student loans

If you decide to move forward with a private loan refinance to pay off your federal debt, you'll need to know how to refinance student loans first. Here are a few key steps to take:

• Compare quotes from student loan refinance lenders online: Look at interest rates, whether the rates are fixed or variable, what fees are charged, and what repayment plans are available to you.
• Get prequalified: Many lenders allow you to check your personalized rate by providing some basic financial information, without undergoing a hard credit check.
• Apply for a refinance loan: Once you’ve found a private refinance loan that works for you, you’ll need to submit a formal application. Private lenders will usually perform a hard credit check at this stage. You’ll also need to provide other personal and financial information as part of the application process.
• Get approved and sign your loan paperwork: After careful review, sign the documents so your lender can move forward with arranging funding to repay your existing loans.

Be sure to keep paying your existing student loan servicer until the refinancing process is complete.

Alternatives to student loan refinancing

If you’ve considered whether you should refinance and determined it doesn’t make sense for you, there are other options to explore. Here are some alternate ways to manage your federal student loans:

• Federal loan consolidation: You can obtain a Direct Consolidation Loan through the Department of Education. This allows you to combine multiple federal student loans and change loan servicers without giving up federal benefits. Just remember, your interest rate won't decrease — it will be a weighted average of all of your existing loans.
• Deferment or forbearance: If you’re struggling to pay your current debts, check if you qualify for deferment or forbearance. There are many ways to qualify, including proving unemployment or demonstrating financial hardship. You can ask your loan servicer about your eligibility or check the guidelines on the Department of Education’s website.
• Select a new repayment plan: You can switch to a different repayment plan, including income-driven plans, which may reduce your monthly payment. Remember, though, that the less you pay each month, the longer it’ll take to become debt-free and the more interest you'll pay over time.

Be sure to explore these options before deciding if refinancing federal student loans makes sense for you.

Refinance federal student loans FAQ

Is now a bad time to refinance student loans?

Interest rates on student refinance loans have been trending higher in recent years due to the Federal Reserve raising the benchmark interest rate. It might make sense to refinance your private student loans only if you can qualify for a lower rate than you have on your existing educational debt. 

Can student loans be forgiven if you refinance?

Student loans can only be refinanced with a private lender, which means private student loans wouldn’t be eligible for forgiveness via Public Service Loan Forgiveness (PSLF) or income-driven repayment loan forgiveness. If the federal government takes action to provide broad forgiveness to many borrowers, as the Biden administration attempted, private student loans wouldn’t be eligible for this forgiveness.

How often can you refinance federal student loans?

You can’t refinance federal student loans with the Department of Education, but you can refinance them with a private lender. As long as you qualify, you can refinance with a private lender as often as you'd like. However, it rarely makes sense to refinance federal student loans as you would need to give up important borrower benefits to do so.