Read This Before You Refinance Federal Student Loans

Even with low rates, refinancing isn’t right for everyone.
Cecilia Clark
By Cecilia Clark 
Edited by Des Toups

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Refinancing student loans at a lower interest rate can put more money in your pocket. With federal student loan bills restarting soon, it might seem like the perfect time to take this step.

But even if you qualify for refinancing, it won’t always make sense if you have federal student loans — and most borrowers do. Ask yourself the following to figure out if refinancing is right for you.

What’s the latest on the payment pause and cancellation?

Most federal student loan payments are paused until as late as summer 2023 while lawsuits work their way through the courts.

President Biden also announced cancellation of up to $20,000 for some federal borrowers.

Refinancing replaces your existing loans with a new private loan. That loan won’t qualify for the federal forbearance or cancellation. No matter how good a lender’s rate offer is, it won’t beat 0% interest.

If your goal is to pay off loans fast, stick with the forbearance for however long it lasts and make sure you take advantage of all cancellation opportunities.

Do you work in public service?

Public service workers should steer clear of refinancing federal loans.

If you can qualify for an existing forgiveness program — like Public Service Loan Forgiveness — keep your government loans. You’ll usually pay the least overall if you get loan forgiveness.

Is your job at risk?

Wait to refinance federal loans if you think you could lose your job or have your hours reduced in the upcoming months.

Even if your employment feels rock solid, look at all your financial obligations — like rent and car payments — before refinancing. If your income changes, could you still afford everything?

Federal student loans have options like unemployment deferments and income-driven repayment plans. These can help keep payments manageable if your situation shifts.

Do you also have private student loans?

This decision is simpler. Private loans don’t qualify for existing government programs and wouldn’t be eligible for federal loan cancellation.

If you can qualify for a lower interest rate, there’s little downside to refinancing private student loans.

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