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Should I Refinance My Federal Student Loans?

November 25, 2016 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Should I Refinance My Federal Student Loans?

Graduating from college and starting your career is a time filled with questions and excitement. On the one hand, everything is new and getting to check all the “firsts” (first solo apartment, first salaried job, first absolutely terrible post-grad roommate) off your list is incredibly rewarding. On the other hand, some of those first financial questions can be just a bit overwhelming, especially when it comes to student loans.

Understanding your student loans, whether they are private or federal, and how much you need to pay to make a dent is all new territory and brings on even more questions. But know that you’re not alone. The latest numbers suggest over 44 million people in the country have a total of $1.4 trillion in student loan debt .

As you start managing your post-grad budget, you might realize that student loan payments are a large portion of your monthly bills. If that’s the case, it’s a good idea to start learning about student loan refinancing. Can it get you a lower interest rate? How does refinancing differ from student loan consolidation? And will any of this save you money?

The most important answer, first: Yes, student loan consolidation and refinancing can save you money. However, they are both different, and you’ll need to figure out which option is a better fit for you. Now let’s get into the nitty-gritty.

There are a few things to be aware of before you refinance fed loans. We’ve gathered the most frequently asked questions from our blog and social media channels about federal student loan refinancing to help you decide whether it’s right for you.

Student Loan RefinancingStudent Loan Refinancing

What is Federal Student Loan Refinancing?

If you graduated with student loans, you likely have a combination of private and federal student loans, 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, so you can’t refinance at a lower rate and keep it as a federal loan. However, you can refinance your federal student loans into private loans with a new—ideally, lower—interest rate.

When you refinance into a private loan, you lose some of the benefits that come with a federal loan, which is worth keeping in mind. However, the new loan (and the new interest rate) could translate to a lower interest rate and paying off loans sooner.

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 new loan terms that replace your old student loans.

Consolidation takes your student loans and bundles them together. This allows you to work with the provider of your choice and qualify for new repayment options. Consolidation, however, does not get you a lower interest rate. Refinancing, on the other hand, takes your old loans and finances them at new interest rates with a private lender.

When you consolidate federal loans through the Direct Loan Consolidation program , the resulting interest rate is the weighted average of the original loans’ rates, which means you don’t save any money. 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—interest rate based on your financial profile. That lower rate translates to total interest savings, and you may be able to lower your monthly payments or shorten your payment term.

What Are The Benefits to Federal Student Loans?

The main benefit is savings. If you refinance federal loans at a lower interest rate, you can save thousands over the life of the new loan. You can also lower your monthly payments or shorten your term (the latter means higher monthly payments but more total interest savings). Plus, you may be able to switch out your fixed rate loan for a variable rate loan (more on variable rates below).

Recommended: Not sure which rout to take with your student debt? Use our Student Loan Navigator to explore your options.

What Are The 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-issued student loans. Those benefits fall into three main categories:


Most federal loans will allow you to put payments on hold through deferment or forbearance when experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, but 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 Plan

Federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make lower payments than the standard plan. 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.

Potential Student Loan Forgiveness

Some federal loans are eligible for forgiveness under certain circumstances. The most common forgiveness programs are for 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 do not offer forgiveness.

Related: Do You Qualify For Public Student Loan Forgiveness?

Common Questions Around Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

We see a lot of borrowers refinancing graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates. In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly. The one thing all 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 can be. While many lenders look at credit score as part of their analysis, it’s not always the defining factor. For example, SoFi evaluates a number of things, including your career experience, education, monthly income vs. expenses, and track record of meeting financial obligations.

Are There Any Fees Involved in Refinancing Federal Loans?

It depends on the lender, but SoFi allows you to refinance with no application, origination or prepayment 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 Student Loans Typically Have:

  • A rate that stays the same throughout the life of the loan
  • A higher rate than variable rate student loans
  • Payments that stay the same over the life of the loan
  • Variable Rate Student Loans Typically Have:

  • A rate that’s tied to an “index” rate, such as the prime rate or LIBOR . SoFi’s variable loan rate is tied to the one-month LIBOR rate, and can change as often as monthly.
  • A lower initial rate than fixed rate student loans
  • Payments and total interest cost that change based on interest rate changes
  • A cap, or maximum interest rate. For example, SoFi 5- and 10-year variable loans are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR.
  • 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 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 3-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. 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.

    Should I Refinance My Federal Student Loans?

    It depends on how much you might save with a lower interest rate from a student loan refinance, versus how likely you are to use the benefits that come with having federal student loans.

    First, you can use our student loan refinancing calculator to figure out how much you might save with a lower interest rate. In general, borrowers often refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

    Next, ask yourself: Are you going to use the programs or benefits that come with federal student loans? These include income-based repayment plans, as well as loan forgiveness for teachers, doctors, or even lawyers in public service. If that’s you, great, but if it’s not, that’s OK too.

    There are some downsides to income-driven student loan repayment plans, too. You can end up paying more in interest or get hit with a higher tax bill after your loan is forgiven.

    However, depending on your financial situation, that flexible repayment plan could be a saving grace. It depends on how much you have in federal student loans and how confident you are about your repayment options.

    The last thing you’ll want to consider before you opt to refinance your student loans is the terms of your new student loan. Weigh all the costs and benefits, and figure out what makes sense for you. We know you can do it. After all, you’re a college graduate.

    If it’s right for you, check your rates in two minutes to refinance your federal student loans. 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 refinancing your student loans? Start today!

    External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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    SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

    SoFi Student Loan Refinance
    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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