Federal and Private Student Loan Refinancing

Are you considering refinancing or consolidation of Federal or Private Student Loan to save money with the lower interest rate for payments? Find the best comparison of loans to get refinancing with lower monthly payments.

Updated by Gowtham Ramesh on 8th June 2019

If you are stuck with your student loan debt or exhausted with its dues and payments where it gets hard for making regular payments, then refinancing can help you!

When it comes to loans, around 44 million students have a private and federal loan debt. In classes of 2018, around 69% of the college students had a debt of average $29,800 which compromised of private and federal student loans.

So, the student loan debts are now a full-fledged disaster. As more and more companies have turned their heads towards this scenario by providing various relief to students loans, one of the reliefs among them is refinancing.

Now let's get into the details of student loan refinancing and how it can help you.

Table of contents

What is student loan refinancing?

Refinancing allows you to save money on interest and make payment easier and manageable. By cutting off a few percentages, you can save some money in the time duration of debt repayment.

Borrowers can refinance student loan debt with a higher interest rate and obtain a lower rate leading to saving of money on interest above course. These savings can then go as extra payments of debt which will help to get out of the loan faster. Furthermore, borrowers can select a long term of repayment to get a lower monthly payment.

Refinance federal and private student loans

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Example -

If you have a loan of $28,000 at 7.6% of interest rate for a period of standard 10 years repayment plan, your monthly amount would be around $334. You pay around $40,059 across the life of your loan.

If you refinance, you will be qualified for a 10-year loan at 4.5% interest leaving you a monthly payment of $290. Now, you will have to pay around $34,823. It will help you save $5,000 by refinancing

Refinancing of your federal loans might get you a better rate of interest. Refinancing generally includes Grad PLUS and Parent PLUS loans which are relatively high in the interest rate. It will basically be in double-digits, based on the year you obtained it in. 

How it works

Refinancing is a major step in your financial matter.

Generally while refinancing the federal student loan, your loans are forfeited by a private lender. Refinancing companies can refinance both federal and private student loans.

How much of money is saved in refinancing?

While refinancing a federal loan, certain benefits such as income-driven repayment plans and loan forgiveness will not be available anymore, so analyze for a good plan before getting into it.

Companies generally allow you to check your perspective interest before filling out the application.

Checking of interest rate will get you in a Soft Credit pull and won't affect your credit score.

It's a wise decision to use loans with a higher interest rate in refinancing than lower once. Loans like Direct Subsidized and Unsubsidized loans generally have an interest rate of 5.05% and by refinancing it, you won't be getting any better rate.

But loans like Direct PLUS which has interest around 7.6% can be considered to be refinanced. 

Other federal repayment options

The federal government has numerous income-driven repayment plans which will help you to lower monthly payments. This consist of Income-based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans.

Certain plans are need oriented given to certain eligible borrowers. While others are available for most federal student loan borrowers. There are definite downsides to an income-driven plan, hence this can be a lifesaver if you are experiencing economic hardship or are in need of lower loan payments.

If you are a federal employee or a not-for-profit-employer, you might be eligible for student loan forgiveness based on the payments. Some of the types of loan forgiveness programs are given here.

  • Loan forgiveness for Teacher

  • Loan forgiveness for Lawyers

  • Loan forgiveness for Doctors


[Learn more on student loan forgiveness programs ]


By refinancing your federal loans, you are no longer entitled to these repayment plans or loan forgiveness programs.

Under high debt, it is better to keep federal loans to apply for alternative repayment plans.

Facing financial hardship such as job loss, you can opt for forbearance where you can postpone making payment without getting into default.

Once if you have done refinanced your student loans, you lose this option.

If you are positive to repay your loans under the given repayment terms and attempting to maximize your saving, credit score and healthy income, refinancing your federal loan is a wiser option.

Ways to refinance your student loans

While thinking of refinancing your federal student loans, it's always better to compare your terms.

  • Repayment term

  • Monthly payments

  • Interest rates

Federal student loans usually take around 10 - 30 years to complete (consolidated) to repay your loans. Whereas refinancing typically offers repayment terms of around 5 to 20 years. With federal loans, the rate is a fixed rate of loan where interest rate will be the same during the repayment.

How to refinance student loans

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Private lenders offer both fixed and variable interest rate. This might be helpful or become a burden, depending on the current or future scenario of interest rate and market condition.

If you are going for a refinance of federal student loan go through the impact it has on your monthly payments. Doing a side by side comparison of repayment terms will give you the true benefit of refinancing.

Tips to consider before refinancing federal student loans

Refinancing is a very big decision. It's certain that refinancing is very helpful for private student loans. But, provided the federal loans come with loan forgiveness and repayment flexibility, it's hard to make choice in the case of federal student loans.

  • Go through the benefits offered by federal student loans 

  • Take only the loan that you want to refinance 

  • Make sure your credit report and score are good

  • Increase chances of approval

  • Analyze the time and duration of repayment from different banks

Refinancing your private student loan

A private student loan can be refinanced with a variable and fixed interest rate and new repayment terms which might be short or longer than your existing plan. The variable interest rate will fluctuate over the time of the loan in the market while fixed rates remain the same.

The change in the interest rate and payment period to save money for the beneficiary. The borrower can benefit from the reduced interest rate, which makes them pay less across the lifetime of the loan.

Some may prefer to increase their repayment term which will bring the monthly payment paying more over the life of loan unless you receive a lower interest rate. In another way, pay more or less over the time of loan depending on the new rates and repayment terms.

Private student loan refinancingsource - pexels.com

While refinancing with a private lender, the new rates will be based on the creditworthiness of your application or your co-signer credit history if you fail to meet the requirements.

If your financial situation has been improved from the beginning of the time you took the loan, then you would be getting a lower interest rate which will save your money in the interest you pay to the loan.

If the lower interest rate is not offered than your existing rate of interest, it's better to avoid refinancing as you will be paying more in the long run.

Private student loan refinancing eligibility

  • To be eligible for the refinancing of a loan with a private lender you need to have a proper record of making regular on-time payments for your old loans and a well-maintained credit score.

  • You also need to be employed with a consistent income.

  • It's better to head out to the individual lenders and ask for their specific set of rules and eligibility to compare the results and choose the one that fits you good. 

Benefits and drawbacks of private student loans

There are several advantages and limitations of private student loans. Some of them are mentioned here.

Easier to manage finance

By refinancing your loans you get an upper hand in managing your monthly payments whereas the lower amount is there comparatively from the old monthly due with an interest rate lower than old once.

Better terms

Refinancing will give you an efficient term of payment reduction. It can be seen gradually and will definitely reduce the timeline of your loan from the existing one.

Lower monthly payments

Through refinancing of the loan, you will be getting better interest rate comparatively from the old one which will make sure that your monthly payment is lesser from the old one. That makes it more easy to pay off the loan amount.

Lower interest rate

By refinancing your loans the interest rate will be reduced based on the past history of qualifying payments thus the lender will provide you refinancing at a lesser rate.

Based on creditworthiness

The refinancing is generally granted on the basics of your creditworthiness. It will be taking place by carefully considering the credit score and the payment that you have made to the past loans.

Certain private lenders might charge you origination fee which is not present in federal refinancing. You can always talk to the leader to refinance a single loan rather than combining many into one.

It is always better to evaluate your choices before getting into it.


If you graduated recently and are underemployed and thinking of switching job, then you better stick with the federal loan dues, as the generous repayment options will be available to help you until you have stabilized your employment scenario.

If you are comfortable and in a secured financial position having a good credit score and are looking forward to closing your student loan debt as fast as possible, then looking into refinancing might be a good option with private loans.



  Can you refinance private student loans into federal loans?

Consolidating or refinancing of all your federal student loan and private student loan both can be made into a single loan from 2014. Still, there are certain timelines where consolidating all of your loans, both the federal and private might make the loan good and bad so be careful in your decision.

  Does refinancing student loan save money?

Refinancing is best at times when you have more on student loans which can be helpful in saving money through refinancing. It will help you save money as it gives you a lower interest rate. If it doesn't, then its better to keep the loan without refinancing.

  Should you refinance your student loans?

Student loan refinancing helps the borrower to refinance the higher interest rate of student loan into a likely score of a lower rate of interest which will save you money on interest over the term. Generally, it means saving the amount then move towards payment of extras to get you out of it as soon as possible.

  Can I convert my private student loans to federal loan?

You cannot convert the private student loan into a federal student loan. A federal student loan is made for the borrowers on need-purpose which can be applied through an application called the FAFSA. There are other options such as refinancing a federal loan using a private loan but you cannot do the other option.

  Is refinancing my student loan a good idea?

If you are stuck with a higher interest rate in your student loan then it may be a good idea. It can bring down the majority of your interest by refinancing your debt by taking out a new loan from a private lender. However, it cannot be a good solution for all your debts and for everyone.

  How can I lower my private student loans?

You can lower your private loan either by holding down the loan payments for a period of time or get down your interest rate lower.

For holding your loan payments, going for deferment or forbearance is the option available for you to get it stopped for a while. To get the interest rate lower, go for refinancing as if you have good credit you can get it down.

  Is there a downside to refinancing student loan?

The refinancing can be either good or bad as it might turn out as a benefit or make your financial situation worse.

Refinancing of a private student loan can help you in saving money in the long run with a lower interest rate.

  What happens when you refinance a student loan?

Refinancing generally increase the repayment term with lower monthly payments. Refinancing of federal loans into a private loan can be risky by giving up your important protections such as flexibility in repayment option ability to pay later when you are unemployed.

  Can my bank refinance my student loan?

Refinancing of student loan is generally done by the private lenders, whereas consolidation of loan is done by taking out the direct consolidation from the federal government. It doesn't lower the interest rate, it only lowers the rate.

  What credit score do I need to refinance student loans?

To qualify for refinancing of student loan, you require a decent credit score. There is a limit among lenders who want a score of 680 or above to qualify. For example, SoFi gives refinancing options to applicants who have a score of 650 or higher.