Refinance federal student loans lower interest rate

Q: What is not a good reason to refinance student loans?

Youre almost done paying off your student loans. If youve been paying off student loans for a while, you may be close to the end of your repayment term. If youre less than five years away from having your loans paid off, the refinancing process probably isnt going to be worth the trouble.

Editor's Note: This post was updated to reflect President Biden enacting federal student loan forgiveness on Aug. 24, 2022.

Table of Contents Show

Consider a private lender that offers their own protections
SoFi Student Loan Refinancing
For borrowers with both federal and private student loans
Can you lower federal student loan interest rates?
Can federal student loans be refinanced?
Will refinance federal student loans be forgiven?
What is not a good reason to refinance student loans?

Refinancing your student loans is an effective way to simplify your finances by combining your various monthly payments into one new monthly bill with just one lender.

Those who qualify for refinancing are also able to shorten or lengthen their loan repayment term according to what works best for their finances, and they may score a lower interest rate to boot.

Sound too good to be true? For federal student loan borrowers specifically, there is a catch.

For borrowers who have loans that are owned by the U.S. Department of Education, the only option is to refinance through a private lender, like a big bank, credit union or online lender. The government does not offer refinancing options, just a Direct Consolidation Loan program.

Once a federal student loan borrower swaps in their loans for a refinanced loan through a private lender, however, they lose all of the federal loan protections they once had.

If you're a federal student loan borrower, you need to be aware ahead of time what you will miss out on by moving over to a private company. These unique governmental protections set in place for federal borrowers offer peace of mind you may not be willing to give up — most notably the federal student loan freeze that's currently in place through December 2022 and a current interest rate of 0%.

Here are some of the additional protections:

Deferment and forbearance for up to three years (and with subsidized federal loans, you aren't charged interest during deferment)
Access to income-driven repayment plans that recalculate your monthly bill based on any changes in income
Forgiveness programs for certain jobs through Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness

Plus, since the Biden administration has moved forward with widespread student loan forgiveness, borrowers who choose to refinance with a private lender will no long qualify for cancellation.

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Consider a private lender that offers their own protections

With federal student loan payments and interest currently on pause through December 2022, now is not the time to be refinancing federal loans. However, when this Covid-related postponement period ends and if you want to try locking in a lower interest rate through refinancing, know that there are some private lenders that have their own payment protections for borrowers. These protections won't be as extensive as what you would receive with federal loans, but at least it's some form of security.

Protections may include deferment in the case of unemployment or economic hardship, as well as the option to make interest-only payments before your repayment term begins.

SoFi Student Loan Refinancing, for example, offers borrowers the following:

Unemployment protection (forbearance offered in three-month increments, capped at 12 months)
Covid forbearance of payments for a minimum of 90 days, if experiencing financial hardship
Loan deferment, if going back to school
First six months of pre-existing grace period on loans looking to be refinanced

SoFi Student Loan Refinancing

Cost
No origination fees to refinance
Eligible loans
Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans
Loan types
Variable and fixed
Variable rates (APR)
From 3.99% (rates include a 0.25% autopay discount)
Fixed rates (APR)
From 3.99% (rates include a 0.25% autopay discount)
Loan terms
5, 7, 10, 15, 20 years
Loan amounts
From $5,000; over $10,000 for medical/dental residency loans
Minimum credit score
N/A
Minimum income
N/A
Allow for a co-signer
Yes

Terms apply.

For borrowers with both federal and private student loans

While you should hold off on refinancing your federal student loans during their current payment suspension, the opposite is true for your private student loans.

Since private student loans are not a part of the Covid-induced forbearance, your monthly payments are still due and interest has continued to accrue. For this reason, you may want to consider refinancing just your private student loans if your interest rate is high, or if your credit score has improved since you first took out the loan.

Regardless of whether you choose to refinance today, know that many private lenders have put into place some sort of payment relief for borrowers experiencing financial hardship. Make sure to ask your specific lender if they are offering any assistance at this time and how to qualify.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Can you lower federal student loan interest rates?

Refinancing is the main way to lower your interest rate, but you can also save by signing up for autopay — even if you don't refinance. Federal loans and many private lenders offer a 0.25% interest rate discount when you sign up to have your payments automatically deducted from your bank account.

Can federal student loans be refinanced?

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.

Will refinance federal student loans be forgiven?

This summer, President Joe Biden announced that individuals who earn $125,000 or less per year will be eligible for $10,000 in federal student loan cancellation. A big caveat: You cannot benefit from forgiveness from the federal government if you've refinanced your entire federal student loan amount.

What is not a good reason to refinance student loans?

You're almost done paying off your student loans. If you've been paying off student loans for a while, you may be close to the end of your repayment term. If you're less than five years away from having your loans paid off, the refinancing process probably isn't going to be worth the trouble.