How to Refinance Federal Student Loans

#1 Student loan lawyer

Updated on July 15, 2022

Refinancing federal student loans means working with a bank, credit union, or online lender to get a lower interest rate, which will save you money over the life of the loan. But doing that will cost you access to valuable protections like income-driven repayment plans, deferments, and the interest-free payment forbearance that’s been in place throughout the Covid-19 pandemic.

Unfortunately, there’s no way to refinance your federal loans and keep them with the federal government. You can combine your existing loans into a new Direct Consolidation Loan. Doing that may lower your monthly payment, but it won’t lower your interest rate. The consolidated-loan rate is a weighted average of all the original loans rates, rounded up to the nearest one-eighth of a percentage point.

Keep reading to learn if refinancing your federal student loans with a private lender is right for you.

Can You Refinance Federal Student Loans?

You can refinance federal student loans so long as you meet the lender’s eligibility requirements. Each lender has its own criteria, but you or a co-signer will typically need the following to qualify:

  • A credit score in the mid-600s at a minimum, but you’ll need a score in the 700s to get the best loan terms.

  • Enough income to cover your living expenses and the payment on the new loan.

  • A degree from a qualifying school.

  • US citizenship or be a permanent resident.

You can shop around with different lenders to find the best refinance rates.

Many lenders will prequalify you for refinancing by peaking at your credit report using a soft credit check. This won’t affect your credit score. But it will let you know your options before you submit a full application.

Learn More: Does Student Loan Refinancing Hurt Your Credit?

Should you refinance federal student loans?

Refinancing rates are low right now, but you should probably hold off on taking advantage of them until the interest-free payment pause ends after August 31, 2022. If you refinance now, you’ll have to start making payments immediately, and your loans will start accruing interest.

I recommend that you use this time to raise your credit score and pay down credit card debt and personal loans. That way, when payments restart, you’ll be able to get the best student loan refinancing rates.

If you decide to refinance, remember that doing so will eliminate certain federal benefits and repayment options. If you lose your job or your health fails, you won’t be able to qualify for an income-based repayment plan. And depending on the lender, you may not be able to temporarily suspend payments with a deferment or forbearance.

Learn More: What Credit Score Do You Need to Refinance Student Loans?

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Who shouldn’t refinance

As a general rule, I don’t recommend borrowers refinance their federal student loans — even if they have good credit, qualify for a lower interest rate, and are projected to pay less in total interest over the life of the loan. The loan benefits they’ll lose in the process outweigh the savings they’ll gain.

While everyone’s financial situation is different, I rule out refinancing federal loans for most people who:

  • work in public service and would pay less while pursuing loan forgiveness.

  • have experienced financial hardship in the past few years and needed lower monthly payments.

  • are retired and struggling to pay back their Parent PLUS Loans.

It makes more sense for them to keep their loans with the government and take full advantage of the programs it offers — especially since the Biden administration has made several improvements to programs that were failing federal student loan borrowers.

For example, the Department of Education has:

  • Overhauled the Public Service Loan Forgiveness Program to give borrowers credit retroactively for payments made towards their loans. Read more about the PSLF Limited Waiver Opportunity.

  • Pledged to use one-time waivers and adjustments to retroactively credit borrowers with additional payments toward student loan forgiveness under income-driven repayment plans.

  • Wiped out the loan balances for thousands of permanently disabled borrowers.

Learn More: How to Get Rid of Student Loan Debt

Refinancing federal loans more than once

You can refinance federal student loan debt multiple times without limitation. But once you refinance federal loans with a private lender, you can’t refinance or consolidate that same debt with the government. The refinanced loan is a private student loan. There’s no way to move it back to the Education Department.

To get a lower rate, you’ll need to work with a private lender.

Learn More: How Often Can You Refinance Student Loans?

Bottom Line

The benefits of refinancing federal student loans — saving on interest, getting a single monthly payment, switching loan servicers — are enticing. But the cost you’ll have to pay to get those benefits isn’t justified for many borrowers.

If you decide that refinancing is right for you, shop around to find the best rates and repayment terms.

Learn More: Who Do You Contact if You Have Questions About Student Loan Repayment Plans?

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