Wednesday, November 1, 2023

Should I Refinance Government Student Loans

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Types Of Student Loans

Should You Refinance Your Student Loans?

Determining the type of student loan you have is extremely important, and if you have federal loans you need to further break that down. You should also have an idea of how much student loan debt you haveit may be helpful to break down your debt by loan type.

The types of student loans you could have include:

  • Federal loans under the FFEL program
  • Federal loans under the Direct Loan program
  • Federal loans under the Perkins program
  • Private student loans through a private lender

The student loan relief offered due to the COVID-19 pandemic has been limited to student loans owned by the U.S. Department of Education . Federal student loans which are not ED-owned and private student loans havent been offered the same type of administrative forbearance and 0% interest. While your lender may allow you to postpone your payments, you are likely still accruing interest on your loans.

Who Can Qualify To Refinance Student Loans

Refinancing is when you take out a new loan to replace an old loan or group of loans. When you take out the new loan, your old loans are paid off and you make payments toward your new one. Youll have new terms, a new interest rate and sometimes a new lender.

When you refinance student loans, lenders consider:

Related: Compare Student Loan Refinancing Rates For 2023

Can You Refinance Federal Student Loans

If you took out federal student loans to finance your education, you likely have multiple different loans and monthly payments to worry about potentially with different loan servicers. Plus, your loans currently are stuck at whichever federal loan interest rate was in effect at the time you applied.

With a variety of federal loans to deal with all with different due dates, bill amounts, and interest rates it can be hard to keep track of everything and maintain on-time payments. You also may be in a much better financial situation now that youve graduated and entered the workforce. With a good career, credit history and income, you may have the opportunity to take advantage of a lower rate and save money while paying back your debt.

If youre finding it difficult to manage a large quantity of loans, or you think your financial situation could score you a lower rate, refinancing federal student loans could be an excellent solution.

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No Student Loan Forgiveness Take A Look At Loan Refinancing Before Rates Rise

Pallavi Kenkare

Pallavi is an editor for CNET Money, covering topics from Gen Z to student loans. Sheâs a graduate of Cornell University and hails from Atlanta, Georgia. When sheâs not editing, you can find her practicing bookbinding skills or running at a very low speed through the streets of Charlotte.

Peter Butler

How To writer and editor

Peter is a writer and editor for the CNET How-To team. He has been covering technology, software, finance, sports and video games since working for @Home Network and Excite in the 1990s. Peter managed reviews and listings for during the 2000s, and is passionate about software and no-nonsense advice for creators, consumers and investors.

Whatâs happening

President Biden recently announced $10,000 to $20,000 in federal loan forgiveness. If you have private student debt, youâre not eligible for this forgiveness, but refinancing may help you save money.

Why it matters

Refinancing student loans can help you lock in a lower or fixed interest rate. With rates expected to continue rising, refinancing sooner may make sense.

While borrowers holding federal student loans got big news last week $10,000 to $20,000 in forgiveness for eligible recipients and an extended pause on payments and interest until 2023 those who owe money on private student loans are still faced with their same burdens of debt and payments. Private loans account for a little more than 7%, or $148 billion, of existing student loan debt.

What You Give Up By Refinancing Federal Student Loans

Should I Refinance My Student Loans?

If you took out federal student loans to finance your education, your loans came with benefits that can help you during your repayment. When you refinance student loans, you pay off your existing loans by taking out a private loan, which doesnt come with the same benefits.

The benefits youll be giving up by refinancing federal loans to private student loans include:

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Refinancing Consolidated Federal Student Loans: Can You And Should You

While you can refinance consolidated federal student loans, doing so will cost you access to federal protections like income-driven repayment plans.

Edited byAshley HarrisonUpdated December 15, 2022

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

The terms consolidation and refinancing are often used interchangeably when it comes to student loans but they mean something different for federal and private student loans.

  • Federal student loan consolidation refers to consolidating federal loans into a Direct Consolidation Loan, which wont change your interest rate but could extend your repayment term up to 30 years
  • Private student loan refinancing also known as private student loan consolidation refers to paying off student loans with a new private loan that will come with a new interest rate and repayment term

You also have the option to privately refinance a federal Direct Consolidation Loan, though its important to consider the pros and cons before doing so.

Heres what you should know about refinancing consolidated federal student loans:

Do I Need A High Credit Score To Refinance Federal Loans

Generally speaking, the better your history of dealing with debt , the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit score as part of their analysis, however, its not the single defining factor. Underwriting criteria will vary and is different from lender to lender, which means it can pay to shop around.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. For full eligibility requirements for student loan refinancing, check here for current eligibility and licensing details.

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Best Student Loan Refinance Lenders

  • Variable rates starting at 4.09% APR *
  • Fixed rates starting at 4.39% APR *
  • Choose your own monthly payment
  • No fees of any kind and exceptional customer service for the life of your loan
  • Check your rate in under 2 minutes

To qualify, you must be a U.S. citizen or possess a 10-year Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

*Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. Not all borrowers will qualify for our lowest rates, and your rate will be based on creditworthiness at time of application.

The information provided on this page is updated as of 12/30/2022. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.

What Will I Lose If I Refinance My Student Loans

How to know if you should refinance your student loans

If you refinance your student loans, you won’t be eligible for Biden’s forgiveness plan of up to $20,000. You’ll also lose the following protections:

  • the ability to choose an income-driven repayment plan with a lower monthly payment if you fall into financial hardship
  • payment pauses, such as the pandemic payment pause
  • loan discharge if you die before you can pay off your student loans your next of kin will inherit any private loan balances you may have
  • access to future rounds of student-loan forgiveness, if any, and beneficial changes to repayment programs

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Your Finances Are Stable

The higher your credit score, the better your chances of qualifying for favorable terms. If youve had the chance to start building credit while you were in college or even before that, you may not need to wait long to get to where you need to be.

But if youre just starting to build credit now, it can take some time to establish enough of a positive history to get approved.

If you have federal student loans, refinancing them will cause you to lose your access to income-driven repayment plans. This means that if you lose your job, you wont be able to get a reduced monthly payment with a private lender.

And while many offer deferment and forbearance, theyre generally short-term solutions. If you have job security, it means youll have fewer concerns about not being able to make your payments.

Which Loans Should I Refinance

When deciding which loans to refinance, the most important thing you should consider is the interest rates on your current loans vs that of the new refinanced loans. The rate the lender sets for your refinanced loan will depend on several factors, the main one being your credit score. A good credit score will qualify you for a lower rate of interest.

Whats the best way to decide which loans you should refinance? First, get a quote by private lenders for your refinanced loan, then only refinance loans with a higher interest rate than the one being offered by the lender. You dont want to refinance a loan with already low-interest rates into one that has a higher interest rate.

Parent PLUS and Grad PLUS loans typically have the highest interest rates, so you are likely to benefit most from refinancing these loans first. Many private student loans also have higher interest rates compared to federal student loans. You may want to consider refinancing your private loans if you know youll get a lower interest rate.

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Keep Paying Your Loans As You Wait For Approval

Even though you can browse initial offers in an instant, you may have to wait a few weeks for full approval of a refinancing application. The process usually takes two to three weeks to complete.

In the meantime, dont stop paying your current loans. Only stop paying your current servicers when you get the green light from your new lender.

Once youre approved, set up automatic withdrawals from your bank account so you dont miss a payment. Many lenders offer an additional 0.25% discount on your interest rate when you set up autopay. You might qualify for an additional loyalty discount if you refinance with a bank where you already have a bank account.

Now that you know you can easily refinance student loans, it will only take a few minutes to check your rates and compare lenders.

If you find a good offer, you can submit a full application. Once youre approved, you can say goodbye to your old loan servicers. Plus, your new interest rate could save you lots of money over the life of your loans. As long as youve thought through all the pros and cons of refinancing, it can be a smart way to get out of student debt faster.

What Happens If I Lose My Job Or Cant Make Loan Payments For Other Reasons


Some private lenders offer forbearance the ability to put loans on hold in cases of financial hardship. Policies vary by lender, so its best to learn what they are before you refinance. SoFi, for example, offers Unemployment Protection to qualifying borrowers who lose their jobs through no fault of their own.

In those cases, SoFi suspends monthly loan payments and provides job placement assistance during the forbearance period. This benefit is offered in three-month periods and capped at 12 months.

For policies on disability forbearance, its best to check with the lender directly, as this is often considered on a case-by-case basis.

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Does Refinancing Federal Student Loans Make Sense For Me

Refinancing your student loans can be helpful, under the right circumstances.

If youre in a secure financial situation that isnt expected to change and you have a good credit score to help you qualify for the lowest rates, refinancing can be a good option to help you save money.

If you have fluctuating income or youre worried about job security, refinancing federal student loans isnt a good idea. Its also not a good idea if youre hoping to take advantage of student loan forgiveness programs or extended repayment options.

Before you refinance your loans and forgo the benefits that come with federal loans, think critically about your situation and what you need. Once you refinance your federal loans with private student loans, you cant change them back.

How To Refinance Federal Student Loans

If you weigh the pros and cons and decide to refinance your federal student loans, you can refinance your debt by following these seven steps:

1. Check Your Credit Reports: Before shopping for a lender, review your credit report and make sure all of your information is accurate. You can get your free credit reports at

2. Collect Your Information: Lenders will ask for information about your income and employment, so you can save time by collecting some documents before applying. Gather your recent pay stubs, W-2 forms, and your current loan statements.

3. Research Refinancing Lenders: There are many refinancing lenders out there, so shop around and choose a few lenders to request more information. Lenders can vary in terms of rates, available terms, and benefits, so make sure you do your homework.

4. Use Loan Prequalification Tools: Some lenders, including College Ave, allow you to and view potential options without affecting your credit score.

5. Select a Loan Option: You typically will have several loan options to choose from, such as different repayment term lengths and whether you choose a fixed or variable interest rate. In general, the shorter the loan term, the lower your interest rate, so select an option that fits your budget and overall goals.

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Will I Save Money Either Way

Not necessarily. Direct Loan consolidation of existing loans at the weighted average rate is not designed to save you money.

Direct Loan consolidation offers the ability to combine loans into one loan with one monthly payment, as well as the ability to extend the term of your loans in certain circumstances. While extending the term on your loans may result in lower monthly payments, youâll pay more interest over the life of the loan.

Refinancing your student loans allows you to lower the interest rate on your loans, which could help you pay off your loans sooner, meaning youâll pay less interest over the life of your loan.

Student Loan Refinance Fixed rates from


You Wont Qualify For Federal Loan Forgiveness

Is student loan refinancing worth it? The pros and cons of changing your loans

Some federal student loans are eligible for loan forgiveness programs, such as Public Service Loan Forgiveness. But once you refinance, you no longer qualify for loan forgiveness. And no private lender offers forgiveness options.

If you work for a non-profit organization or government agency and plan to do so for the next ten years, it may be financially wise to pursue loan forgiveness rather than student loan refinancing.

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Student Loan Forgiveness Discussions Under Biden

Once you determine the types of loans you have, its time to consider if refinance makes sense based on current discussions about student loan forgiveness in the Biden administration. Its extremely important to note that these discussions about student loan forgiveness are still discussions, nothing has been approved. There are a few key areas of the conversation which are extremely important. The first is the forgiveness amount. We have heard that President Biden has been supporting $10k in forgiveness while many student loan advocates and congressional members have been pushing for $50k.

The second area of discussion is which types of student loans would be eligible. Would forgiveness be offered to all federal student loans or just ED-owned loans, and will private student loans be eligible? The discussion regarding federal student loans is still ongoing, but there are many who believe that private student loan forgiveness is highly unlikely.

Should I refinance my private student loans during the pandemic?

Interest rates are currently very low, starting at 1.74% APR. Private student loans arent eligible for relief under the CARES Act, so it is worth it to consider private student loan refinance to help you repay your loans with a potentially lower interest rate. If you have stable employment, now may be a good time to refinance your private student loans and cash in on potential savings.

When It Makes Sense To Refi

There are a few instances when a refinance makes sense, even if you have federal debt.

If interest rates have dropped substantially, and youre able to lock in a fixed rate thats significantly less than the weighted average rate of your federal loans, consider a refi. Depending on your balance and how long youll be paying it off, dropping your rate by a percentage point or two could translate to thousands saved over the course of the loan.

That was the case for Riley Adams, CPA, of Young and the Invested and his wife:

My wife and I refinanced her first tranche of federal student loans three years ago and intend to refinance her second set shortly. We made the decision after recognizing she wont have any need applying for protection under her federal student loans Because of this, we prioritize having a lower interest rate given the depressed levels seen in the market right now. We want to decrease our interest expense as much as possible instead of worry about the protections provided for federal student loans.

Alternately, you have the option of choosing to only refinance the loans bearing an interest rate higher than your refinance loans rate. You can mix and match this process, refinancing some or all of your loans, and hand-picking both the federal and private accounts you wish to combine.

Therefore, it makes more sense for some graduates to put their efforts into lowering the interest burden of their loans as early as possible.

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