If you’re looking to make your current student loan payments more manageable and considering the option to refinance, there may be a federal student loan program available to help. These federal programs can be worth considering first, before refinancing.
Student loan programs from the federal government are available to eligible federal student borrowers, and many of them don’t require a credit check. Federal student loan programs include income-based repayment plans, forgiveness programs, and consolidation.
Whatever stage you’re at in your borrowing journey, here’s what you need to know about federal loan programs before refinancing to help choose the right option for your needs.
Table of Contents
Key Points
• Federal student loan programs include income-based repayment plans, forgiveness programs, loan consolidation, and various loan types for undergraduate, graduate, and professional students.
• Refinancing federal loans converts them to private loans, permanently eliminating access to federal programs and protections.
• Income-driven repayment plans calculate monthly payments based on discretionary income and family size.
• Public Service Loan Forgiveness allows forgiveness after 120 qualifying monthly payments for public-sector workers under accepted repayment plans with eligible full-time employers.
• Refinancing approval typically requires credit scores of at least 650 to 670, with scores in the 700s significantly improving qualification chances.
Should You Explore Federal Options Before Refinancing?
If you have federal student loans, it makes sense to explore federal student loan programs before you move ahead with refinancing. Here’s why: Federal loans qualify for special benefits and protections, such as income-driven repayment, deferment, and forgiveness. If you refinance federal loans, they become private loans, and you lose access to all these benefits.
On the other hand, if you have private student loans, you are not eligible for federal student loan programs. In this case, refinancing student loans might help you get more favorable rates and terms, especially if you have strong credit and can qualify for lower rates.
Why Consider Federal Loan Programs?
The federal government offers student loan programs for undergraduate students, graduate students, and those who are repaying their student loans. These federal student loan programs include:
Direct Subsidized Loans
With Direct Subsidized Loans, which are available to students who demonstrate financial need, the government pays all the interest that accrues on the loans while the student is in school and for six months after graduation.
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students and are not based on financial need. With these loans, students are responsible for repaying all interest that accrues on the loan.
Direct PLUS Loans
Graduate and professional students (and parents of undergraduate students) can apply for Direct PLUS Loans. Eligibility is not based on financial need, but you must undergo a credit check, and generally, you must not have an adverse credit history. These loans have higher interest rates and fees than Direct Unsubsidized Loans, but you can borrow more money — up to your total cost of attendance, minus other aid received.
Direct Consolidation Loans
A Direct Consolidation Loan allows borrowers to combine their eligible federal student loans into a single loan with one loan servicer. This can simplify and streamline repayment. However, because the rate on the new consolidation loan is the weighted average of the rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent, consolidation typically won’t lower your interest rate.
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Benefits of Federal Loan Programs for Students
Federal loan programs have several benefits for college students. Here are some advantages to keep in mind.
• Payments aren’t due until six months after graduation: Students are not required to make payments on their student loans while they are in school at least half-time, or during the post-graduation grace period, which is typically six months.
• Fixed interest rates: Federal student loans have fixed interest rates; interest rates on private student loans from private lenders may be fixed or variable. For federal loans first disbursed on or after July 1, 2025, and before July 1, 2026, the rate is 6.39% for undergraduate Direct Subsidized and Unsubsidized Loans; 7.94% for Direct Unsubsidized Loans for graduate students; and 8.94% for Direct PLUS Loans.
• Subsidized options: If you have financial need, the government may offer you a subsidized loan, which means the government pays the interest while you’re in school at least half-time and for six months after you graduate.
• No credit checks for certain loans: You don’t need a credit check to qualify for Direct Subsidized or Unsubsidized Loans.
Federal Loan Programs to Consider After You Graduate
Once you graduate and need to begin paying back your federal student loans, the federal government has a number of programs that could make repayment more manageable. These are some of the options.
Federal Student Loan Repayment Plans
The Education Department currently offers a number of different repayment plans, including long-term plans that can last up to 30 years. You may be able to lower your monthly payment if you opt for a longer repayment term. Extending your repayment term generally means paying more in interest overall, though.
Fixed repayment plans include the Standard, Graduated, and Extended plans. Here’s a look at how they compare.
| Fixed Repayment Plan | Eligible Loans | Monthly Payment Amount |
|---|---|---|
| Standard Plan | Direct Subsidized and Unsubsidized Loans; Subsidized and Unsubsidized Federal Stafford Loans; PLUS loans, Consolidation loans | Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans). |
| Graduated Plan | Direct Subsidized and Unsubsidized Loans; PLUS loans; Subsidized and Unsubsidized Federal Stafford Loans; Consolidation Loans | Payments start out lower and then increase, usually every two years. Payment amounts ensure you’ll pay off loans within 10 years (within 10 to 30 years for Consolidation Loans). |
| Extended Plan | To qualify, you must have more than $30,000 in outstanding Direct Loans or Federal Family Education Loans (FFEL). | Payments can be fixed or graduated and will ensure that your loans are paid off within 25 years. |
Income-driven repayment (IDR) plans aim to make student loan payments more manageable by basing a borrower’s monthly payments on their discretionary income and family size. Repayment terms are 20 or 25 years. At that point, for those on the Income-Based Repayment (IBR) Plan, the remaining loan balance is forgiven.
Here’s a look at how the three current IDR plans stack up.
| Income-Driven Repayment Plan | Eligible Loan Types | Monthly Payment Amount |
|---|---|---|
| PAYE (Pay As You Earn) | Direct Subsidized and Unsubsidized Loans; Direct PLUS Loans (made to students); Direct Consolidation Loans (that do not include parent PLUS loans) | 10% of discretionary income but never more than what you would pay under the 10-year Standard Repayment Plan |
| IBR (Income-Based Repayment) | Direct Subsidized and Unsubsidized Loans; Subsidized and Unsubsidized Federal Stafford Loans; Direct and FFEL PLUS Loans (made to students); Direct or FFEL Consolidation Loans (that do not include parent PLUS loans) | Either 10% or 15% of discretionary income but never more than what you would pay under the 10-year Standard Repayment Plan. (Remaining loan balance is forgiven once the repayment term is up.) |
| ICR (Income-Contingent Repayment) | Direct Subsidized and Unsubsidized Loans; Direct PLUS Loans (made to students); Direct Consolidation Loans | Either 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income (whichever is lower) |
It’s important to be aware that the federal loan repayment plans are undergoing big changes starting in the summer of 2026, due to the “One Big Beautiful Bill.”
For federal student loans disbursed to borrowers on or after July 1, 2026, the government will offer just two repayment plans: a revised version of the Standard Plan, with fixed terms of 10, 15, 20, or 25 years based on the loan balance; and the Repayment Assistance Plan (RAP), a new income-driven plan that bases payments on a borrower’s adjusted gross income. The unpaid interest each month is canceled, and after 30 years, any remaining balance is forgiven.
Borrowers with existing student loans (meaning those taken out before July 1, 2026) can stay in their current plan for now. However, If they are in PAYE or ICR, they must switch to RAP or IBR by July 1, 2028.
Student Loan Forgiveness Programs
In addition to the loan forgiveness associated with IDR plans, the federal government offers other federal loan forgiveness programs, including Public Service Loan Forgiveness (PSLF), which is for public-sector workers. The PSLF program allows forgiveness on the remaining balance on Direct Loans as long as borrowers have made the 120 qualifying monthly payments under an accepted repayment plan and worked for an eligible employer full-time.
There is also a separate forgiveness program just for teachers called Teacher Loan Forgiveness, as well as one for borrowers with permanent disabilities, called Total and Permanent Disability Discharge.
Federal Student Loan Consolidation Program
If you have multiple federal student loans, you can consolidate them into one Direct Consolidation Loan with new repayment terms. This can simplify the repayment process, since you’ll only have one payment and one loan servicer to keep track of.
Federal loan consolidation also allows some borrowers (such as those with FFEL or Perkins Loans) to access repayment and forgiveness programs that they otherwise are ineligible for.
As mentioned previously, the federal student loan consolidation program does not lower your interest rate, however. Your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next one-eighth of 1%.
Your new loan term could range from 10 to 30 years, depending on your total student loan balance. If you extend your loan term, it can lower your monthly payments but the total amount of interest you’ll pay will increase.
Be aware that when loans are consolidated, any unpaid interest is added to your principal balance. The combined amount will be your new loan’s principal balance. You’ll then pay interest on the new, higher balance. Depending on how much unpaid interest you have, consolidation could cost you more over the life of your loan.
Recommended: Student Loan Consolidation vs Refinancing
Federal Loan Programs vs Student Loan Refinancing
If you’re exploring and considering both federal loan programs and student loan refinancing, these are some points to keep in mind.
Key Differences Between Federal Programs and Private Refinancing
Federal loan programs are offered by the federal government and come with federal benefits and protections, such as income-driven repayment and forgiveness. Refinancing is offered by private lenders and replaces a borrower’s current loans with a private loan. Private loans don’t have the same protections federal loans do, and refinancing federal loans makes them ineligible for federal benefits.
Additionally, federal loan programs offer flexibility in repayment options, including repayment plans based on income, deferment options, and forgiveness opportunities. Private lenders may offer some hardship options for those who are struggling with loan payments, but they usually don’t offer forgiveness.
Eligible borrowers may get a lower interest rate through refinancing, depending on the strength of their credit, which could save them money monthly and over the life of the loan. Federal loan consolidation simplifies payment, but typically doesn’t result in lower payments. And depending how much unpaid interest a borrower has, they might even pay more overall with a consolidation loan.
When Federal Programs May Be Better
Federal programs may be suited to federal student loan borrowers who need federal benefits like deferment and/or forgiveness, and those that can benefit from the flexibility and lower monthly payments of income-driven plans.
When Refinancing Might Make Sense
Refinancing can make sense for borrowers who have private student loans and strong credit, which could help them qualify for a lower interest rate and more favorable terms. This may save them money and potentially help them pay off their loan debt faster.
Factors to Evaluate Before Refinancing
Generally, refinancing makes sense if you can qualify for a lower rate. Here are some things to consider before you explore refinancing your student loans.
Current Interest Rates and Loan Terms
Refinancing can potentially allow you to lower your monthly payment by getting a lower interest rate than what you currently have, extending your loan term, or both. Keep in mind, though, that lengthening your loan term may mean paying more in interest over the life of the loan.
Credit Score Requirements
Not every borrower is eligible for refinancing. To get approved, you typically need a credit score of at least 650 to 670. A score in the 700s, however, gives you a much better chance of qualifying.
Your credit score also helps determine your new interest rate. Generally, the better your credit, the more competitive your interest rate will be. If you can’t qualify for a lower refinance rate on your own, you might want to get a student loan cosigner who has strong credit.
Potential Savings Through Refinancing
One of the main reasons people refinance their existing student loans is because they can qualify for a lower interest rate through a new lender. This can help them save money over the life of their loan. A lower rate can also help a borrower pay off their loan faster, or lower the amount they pay each month.
If a borrower’s financial situation has considerably improved since they originally took out their student loans or they have higher-interest student loans, they may be eligible for a lower rate through refinancing.
Impact on Loan Forgiveness Options
As noted previously, refinancing federal loans makes them ineligible for federal forgiveness and protections. If you think you may benefit from forgiveness in the future, or you are currently working towards PSLF, Teacher Loan Forgiveness, or forgiveness through the IBR plan, it likely isn’t a good idea to refinance your federal student loans.
Refinancing also makes student loans ineligible for federal deferment and forbearance programs, which allow you to temporarily postpone or reduce your federal student loan payments.
The Takeaway
Choosing between federal loan programs and refinancing depends on the type of loans a borrower has and their specific financial situation. Federal loan programs, including loan consolidation, graduated repayment plans, income-driven repayment plans, and forgiveness programs, can make repaying federal student loans more manageable. Meanwhile, borrowers with private loans, especially those who have strong credit, may want to explore the option of student loan refinancing.
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.
FAQ
Does it make sense to refinance student loans?
Refinancing student loans can make sense if you are able to qualify for a lower interest rate through a new lender. This can help you save money over the life of your loan. A lower rate can also help you pay off your loan faster, or lower the amount you pay each month.
Keep in mind that refinancing federal student loans with a private lender means giving up federal protections and programs.
Under what circumstances would you want to consider refinancing a debt?
You might consider refinancing a debt if your financial situation has improved since the time you originally took out the loan, and you can now qualify for a lower rate. Refinancing also allows you to extend your loan term, which can lower your payments. Keep in mind, however, that a longer term generally means paying more in overall interest.
Which is a downside of refinancing out of federal student loans?
The biggest downside of refinancing federal student loans is forfeiting federal protections, such as income-driven repayment plans and student loan forgiveness options. Once federal loans are refinanced, they become private loans and are thus ineligible for federal benefits.
Can you refinance federal loans and keep federal benefits?
Unfortunately, no. Once federal student loans are refinanced, they become private loans and permanently lose all eligibility for federal programs and protections.
Should you consolidate before refinancing?
Generally speaking, there is no need to consolidate before refinancing. While both processes involve combining multiple student loans into one new loan, they work in distinctly different ways. Consolidation is for federal student loans and allows borrowers to keep federal protections. Refinancing creates one new private loan that ideally has a lower interest rate, but is ineligible for federal benefits.
About the author
Melissa Brock
Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.
Photo credit: iStock/Drazen Zigic
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