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Student Loans Student Loan Repayment

Is It a Good Idea to Refinance Federal Student Loans?

Today, student loan debt is at an all-time high. The average student who graduated with a bachelor’s degree in 2021 left school with around $29,400 in student loan debt, according to the most recent data from The College Board. 

Refinancing student loans can help borrowers save money or lower their monthly payments, but it may not be right for everyone. A significant downside to converting a federal loan into a private one is losing access to federal benefits, such as income-driven repayment plans.

However, refinancing could make sense if you don’t need those protections. We’ll dive deeper into the pros and cons of refinancing federal student loans below to help you assess whether it’s the best move for you.

In this guide:

Can you refinance student loans?

When you refinance your student loans, you take out a private student loan to pay off your student loan debt. Ideally, your new loan comes with a lower interest rate that allows you to save money. The company you refinance with will pay off your student loan debt, and you’ll make payments on your new loan.

You can refinance private student loans, federal student loans, or both together. But remember: Refinancing federal student loans means you’ll lose access to federal benefits, including federal forbearance, income-driven repayment plans, and student loan forgiveness programs.

Pros and cons of refinancing federal student loans

It’s important to consider whether you’re comfortable giving up federal benefits to take advantage of the potential upsides of refinancing your federal loans.


  • Lower your interest rate

  • Lower your monthly payment

  • Consolidate loans 

  • Release a cosigner

See more below.


  • Loss of income-driven repayment plans

  • Loss of eligibility for student loan forgiveness

  • Loss of deferment and forbearance protections

  • Most private lenders perform credit checks

See more below.

More about the pros of refinancing

If you don’t mind losing federal benefits, refinancing federal student loans could be a wise move. Click each benefit of refinancing we mentioned in the table to expand it and find out more.

Lower interest rates

If you have a good credit score or your score has improved, you may qualify for lower interest rates than you’re paying now. Lower rates can save you money over the life of the loan.

Lower monthly payments

When you refinance your loans, you may have the option to extend your repayment term. Extending your term can decrease your monthly payments, but it can also increase the total cost of your loan due to interest payments. 

The ability to consolidate student loans

When you refinance, you can refinance multiple student loans—federal and private—into one loan. This is known as private student loan consolidation. One monthly payment can simplify your repayment. You don’t need to refinance all your loans at once—you can choose which loans you want to refinance. While you can combine two federal student loans, the process differs from private student loan consolidation. More on that later.

The ability to release a cosigner

If you initially took out student loans with a cosigner—which many private loans require—student loan refinance can provide an opportunity to release them from the obligation. If your credit history is strong enough, you can get your new loan in your name.

More about the cons of refinancing

Click each item we mentioned in the table above to expand it and find out more.

Loss of income-driven repayment plans

Income-driven repayment plans are payment options to help struggling borrowers make their monthly loan payments. These plans can help if you lose your job or can’t work. Federal student loans are eligible for several income-driven repayment plans. The Income-Based Repayment (IBR) plan and the Pay As You Earn (PAYE) plan let you extend your student loan term to 20 or 25 years and limit your monthly payments to 10% to 15% of your discretionary income.

Loss of eligibility for student loan forgiveness

Student loan forgiveness programs are federal and state programs that often involve forgiving a portion of your debt when you work in a certain field. Qualifying careers include many public service jobs—for example, working for a government or not-for-profit organization. 

Loss of deferment and forbearance protections

If you can’t make payments on your federal student loans because you’ve lost your job, or for another reason like a medical issue, deferment and forbearance can help. Both allow you to suspend your payments until you can start making them again. If you have Subsidized loans, the federal government will pay interest on your loans during deferment and forbearance, which can be a significant help. If you have Unsubsidized loans, interest will still accrue in most cases, adding to your overall loan amount.

Most private lenders perform credit checks

Unlike federal student loans, most private student loan companies perform a hard credit check to review your credit history. You may need to apply for a private student loan with a cosigner if you have poor credit or a thin credit file.


Some private lenders offer their own versions of deferment and forbearance benefits. If you have private loans and are curious about your deferment or forbearance options, contact your lender. 

Should you refinance your federal student loans?

Refinance federal student loans if…Don’t refinance federal student loans if… 
You’re in a secure financial positionYour income isn’t stable
You can qualify for a lower rateYou can’t qualify for a lower rate
You don’t mind losing access to federal benefitsYou plan to take advantage of federal loan perks

Refinancing your student loans can be helpful under the right circumstances.

If you’re in a secure financial situation you don’t expect to change and you have a solid credit score to help you qualify for the lowest rates, refinancing can help you save money.

If you have fluctuating income or are worried about job security, refinancing federal student loans might be unwise. We also don’t recommend refinancing if you’re hoping to take advantage of student loan forgiveness programs or extended repayment options.

Before you refinance your loans and forgo the benefits of federal loans, consider your situation and what you need. Once you refinance your federal loans with private student loans, you can’t change them back.

How does refinancing student loans fit into your broader financial plan?

CFP® Erin Kinkade explained how you can determine whether refinancing fits into your broader financial plan:

“When engaged in a financial plan with individuals, looking at their financial condition is critical for setting the foundation to begin planning for additional life and financial goals. 

“One aspect of financial condition is your debt-to-income ratio (DTI), which is affected by student loan debt—and all other debts—compared to your income. If the goal is to lower your DTI, the earlier you can repay a debt, the better because it will lower your DTI. 

“So refinancing the student debt could lead to an earlier repayment or lower interest rate, allowing for a reduced payment, which frees up cash flow. This could foster increased savings or increased payments to a specific debt—for example, an auto loan or student loan. (I’d recommend starting with whichever has the higher interest rate.)

“If the refinance is to extend your repayment term, it’s important to understand that this debt will be factored into your DTI for a longer period. A high DTI will affect borrowing from a financial institution. The lower your DTI, the more likely you are to be accepted. A higher DTI can preclude you from being approved.”

Student loan refinancing vs. federal student loan consolidation

If you don’t think student loan refinancing is right for you but want to merge two or more federal student loans without losing federal benefits, you can apply for a Direct Consolidation Loan. This differs from refinancing because the government issues you a new federal loan. 

Once approved, your new federal student loan will have a fixed rate that is a weighted average of the federal loans you’re consolidating.

Federal student loan consolidation could result in a longer term than the one you have now. However, you can request a shorter repayment term if you’re concerned about paying more interest over the life of the new loan.

How to refinance your federal student loans

Refinancing your student loans can be a simple and fast process. The steps include:

  • Step 1: Review your credit score to see if you meet eligibility requirements. Most will require a credit score of 680 or higher.
  • Step 2: Shop around for a private lender that meets your needs. You can use our guide to compare the best student loan refinance companies. Some lenders will allow you to get prequalified quotes with a soft credit pull, which won’t affect your credit score.
  • Step 3: Gather required documents and data, such as your pay stubs, Social Security number, and information about the loans you want to refinance.
  • Step 4: Once you’ve selected a lender from your preapproved offers, submit your application and await approval. Ensure you keep paying on your old federal student loans until you get a payoff letter from your lender stating it has paid them off.

If you need more help with the process, read our guide on how to refinance student loans.

Find out more in our guide to student loan repayment.

>>Read more: Scenarios where you can refinance student loans