Should You Refinance Federal Student Loans?

Student loan refinancing can help you save money if you qualify for lower interest rates. But even if offered the lowest rates, don't be so quick to refinance your federal student loans.

Refinancing federal loans with a private lender costs you access to government programs — like the student loan relief offered throughout the pandemic.

Even though the student loan payment pause is expected to end by summer 2023, make sure you're OK parting ways with other repayment and relief programs, like income-drive repayment and Public Service Loan Forgiveness.

If you have private student loans, refinancing remains a good option if you can lower your interest rate.

Is refinancing federal student loans a bad idea?

The federal government offered unprecedented help to borrowers during the pandemic. Because of the government's ability to provide these and other borrower protections, think about more than the interest rate when deciding whether to refinance. Consider the following:

• Will your job be at risk in the coming months?

• Would you struggle to afford all your financial obligations if your employment changes?

• Do you qualify for other federal loan forgiveness programs?

If the answer is "yes" to any of these questions, think twice about refinancing.

» MORE: Income-driven repayment: Is it right for you?

When should you refinance government loans?

Consider refinancing government loans if you're comfortable with the risks involved. If you don't need the federal loan benefits, refinancing student loans could offer long-term savings on high-interest federal loans.

For example, say you owed $30,000 with a 7% interest rate and 10 years on your repayment term. Refinancing at a 5% interest rate — roughly the best you could expect — would save you around $3,600.

To qualify, you’ll typically need good credit (a FICO score in at least the high 600s) and a debt-to-income ratio less than 50%. If you wait to refinance, work to exceed those benchmarks to get the best deal possible when you do apply.

Can you refinance federal student loans?

You can refinance student loans, but only with a private lender. You can’t refinance student loans through the federal government. To keep federal benefits, you can consolidate federal student loans. But federal consolidation won’t lower your interest rate or save you money.

» MORE: Learn the differences between consolidation and refinancing

When you refinance loans, a private lender pays off your existing loans and issues you a new private loan with new terms. Once you refinance government loans, you can’t return them to the federal student loan program. By making this trade, you give up certain benefits.

The risks of refinancing federal loans include losing the following benefits:

In some instances, it may make sense to refinance only some of your federal loans. For example, you could refinance your higher-interest PLUS loans from graduate school, but not your undergraduate direct loans. This would keep part of your federal protections in place, should the unexpected happen in the future. You can never transfer private loans to the federal government.

» MORE: Best student loan refinance companies

How to refinance federal student loans

If you've decided to refinance your federal loans, review offers from multiple lenders to find the best deal. Most private lenders will prequalify you via a soft credit check so you can see your new interest rate.

The main reason to refinance government loans is to save money. You may see refinance lenders advertise big savings, but your situation will determine what you save.

» MORE: How to refinance student loans in 7 steps

Other potential benefits of refinancing federal loans include the following:

• Make a single loan payment each month. If you also have private student loans, you can refinance them together with federal loans.

• Switch student loan servicers. You'll get a new servicer through your refinancing lender, which you may want if you've been unhappy with your federal loan servicer.

But a single monthly payment or a different loan servicer likely isn’t worth giving up the peace of mind that comes with government loans. Keep your eye on the savings instead.

How much can refinancing save you?