Should I Refinance My Federal Student Loans?

By Kayla McCormack · August 29, 2022 · 9 minute read

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Should I Refinance My Federal Student Loans?

Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

If you’re thinking about refinancing your student loans, you probably heard that interest rates are low — or at least lower than what you’re paying. Maybe you’re looking to pay down your loans faster – or maybe you’d just like to lower your monthly student loan payments.

Of course, if your student loans are federally held, you haven’t had to make payments since the passage of the CARES Act last year. And thanks to President Joe Biden, the payment holiday, which includes 0% interest, has been extended again through Dec. 31, 2022.

Yet the pause is finite (despite multiple extensions) while interest rates could rise. There’s also the option of consolidation to take into account.

Clearly, knowing if — and when — to refinance is not a simple decision. These answers to some frequently asked questions about federal student loan refinancing may help you decide what’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 of which are loans funded by the federal government. Direct Subsidized Loans or Direct PLUS Loans are both examples of federal student loans.

Interest rates on federal student loans are fixed and set by the government annually, whereas 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.

Can I Refinance My Federal Student Loans?

It is possible to refinance federal student loans with a private lender. However, when you refinance a federal student loan into a private loan, you lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness, which are worth keeping in mind. However, the new loan could mean paying less interest over the life of the loan and paying off loans sooner.

Recommended: Types of Federal Student Loans

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 essentially signing different terms on a new loan to replace your old student loans.

Consolidation takes your student loans and bundles them together. Different servicers manage direct consolidation loans, allowing federal borrowers to repay with one monthly bill. Consolidation, however, does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, takes your old loans and finances them at new interest rates with a private lender.

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 eighth of a percent, which means you don’t usually save any money there. If your monthly payment goes down, it’s usually the result of lengthening the loan term, which means 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 — ideally, better, if you qualify — interest rate based on your financial profile. That lower rate can translate into total interest savings, or you may be able to lower your monthly payments, or you may choose to shorten your payment term.

Recommended: Student Loan Consolidation vs Refinancing

What Are Potential Benefits to 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 (which typically means lengthening your term and accepting a higher interest rate) or shorten your term (this typically means higher monthly payments but more total interest savings).

Streamlining Repayments

Refinancing multiple loans into a single loan can help streamline the repayment process. Instead of multiple loan payments with different lenders, refinancing allows you to streamline to a single monthly payment with one lender.

Not sure which route to take with your student debt? Use our Student Loan Help Center to explore your options.

What Are Potential Disadvantages to 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:


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; so check lender 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 and that private lenders do not offer these programs.

Student Loan Forgiveness

On Aug. 24, 2022, President Joe Biden ended months of speculation by announcing that individuals who earn $125,000 or less per year ($250,000 for married couples) will be eligible for $10,000 in federal student loan cancellation. Other common forgiveness programs focus on public service workers or teachers, or those who’ve participated in an income-driven repayment plan for 20 or 25 years, depending on the plan. Private loans generally do not offer forgiveness.

Potential Advantages of Refinancing Federal Student Loans

Potential Disadvantages Refinancing Federal Student Loans

Interest Rate. Opportunity to qualify for a lower interest rate, which may result in cost-savings over the long-term. Option to select variable rate, if preferable for individual financial circumstances. Loss of deferment or forbearance options. These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjust Loan Term. Get a lower monthly payment, usually by extending the loan term, which could make loan payments easier to budget for, but may make the loan more expensive in the long term. Federal Repayment Plans. No longer eligible for special repayment plans, such as income-driven repayment plans.
Get a single monthly payment. Combining existing loans into a new refinanced loan can help streamline monthly repayment. Loan Forgiveness. Elimination from federal forgiveness programs, including Public Service Loan forgiveness.

FAQs Around Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

Many borrowers who refinance are refinancing 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 score as part of their analysis, however, it’s not the single defining factor. Underwriting criteria will vary and is different 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. For full eligibility requirements for student loan refinancing, check here for current eligibility and licensing details.

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.

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 or LIBOR

• A lower initial rate than fixed rate refinancing loans

• Payments and total interest cost 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 Make Loan Payments for Other Reasons?

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. SoFi, for example, offers Unemployment Protection to qualifying borrowers who lose their jobs through no fault of their own.

In those cases, SoFi suspends monthly loan payments and provides job placement assistance during the forbearance period. This benefit is offered in three-month periods and capped at 12 months.

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 Co-Signers/Co-Signer Release Options?

Many private lenders do allow co-signers and some allow co-signer release options. SoFi allows co-signers, but no option for co-signer release for refinanced student loans. However, if you have a co-signer and your financial situation improves, you can apply to refinance the co-signed loan under your name alone.

The Takeaway

Is refinancing the right option for you? It depends on how much you may save (to get an idea, use our student loan refinancing calculator) and whether you qualify for a lower interest rate from a student loan refinance. Another important factor to weigh is how likely you are to benefit from the current federal student loan forgiveness plan, as well as the protections that come with federal student loans.

In general, many borrowers refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

If refinancing feels right for you, you can check your rates in two minutes with SoFi. SoFi’s student refinance loan is a private loan and does not have the same repayment options/benefits offered by federal programs.

You should explore and compare federal and private loan options, terms, and features to determine what is best for you and your situation.

Ready to refinance your student loans? Learn more about the options available with SoFi.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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