Should I Refinance My Fed Loans? Here’s What You Need to Know

If you’ve thought about refinancing student loans, chances are your next question is whether you can refinance federal student loans. After all, most of the $1.4 trillion in outstanding student loan debt is made up of fed loans.

The short answer is yes— you can refinance federal student loans with a select few private lenders, including SoFi. This is great news for borrowers with high-interest rate federal unsubsidized or PLUS loans.

However, there are a few things to be aware of before you refinance fed loans. We’ve gathered the most frequently asked questions from our blog and social media channels about federal student loan refinancing to help you decide whether it’s right for you.

1. What’s the difference between refinancing and consolidating federal student loans?

When you consolidate federal loans through the Direct Loan Consolidation program, the resulting interest rate is the weighted average of the original loans’ rates, which means you don’t save any money. If your monthly payment goes down, it’s usually the result of lengthening the loan term, which means you’ll spend more on total interest in the long run.

When you refinance federal and/or private student loans, you’re given a new—ideally, better—interest rate based on your financial profile. That lower rate translates to total interest savings, and you may be able to lower your monthly payments or shorten your payment term.

2. Are previously consolidated loans eligible to be refinanced?

3. Can I combine federal and private student loans together through refinancing?

4. What are the benefits of refinancing federal student loans?

The main benefit is savings. If you refinance federal loans at a lower interest rate, you can save thousands over the life of the new loan. You can also lower your monthly payments or shorten your term (the latter means higher monthly payments but more total interest savings). Plus, you may be able to switch out your fixed rate loan for a variable rate loan (more on variable rates below).

5. What are the potential disadvantages of refinancing fed loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-issued student loans. Those benefits fall into three main categories:

Most federal loans will allow you to put payments on hold through deferment or forbearance when experiencing financial hardship. Deferment allows you to pause subsidized loan payments without accruing interest, but unsubsidized loans will still accrue interest. Forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance; so check lender policies before refinancing.

Federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make lower payments than the standard plan. It’s important to note that these plans typically cost more in total interest over the life of the loan. Private lenders do not offer these programs.


Some federal loans are eligible for forgiveness under certain circumstances. The most common forgiveness programs are for public service workers or teachers, or those who’ve participated in an income-driven repayment plan for 20 or 25 years, depending on the plan. Private loans do not offer forgiveness.

6. Who typically benefits from federal student loan refinancing?

We see a lot of borrowers refinancing graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates. In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly. The one thing all refinance borrowers have in common is a desire to save money.

7. Do I need a high credit score to refinance federal loans?

Generally speaking, the better your history of dealing with debt (illustrated by your credit score), the lower your new interest rate can be. While many lenders look at credit score as part of their analysis, it’s not always the defining factor. For example, SoFi evaluates a number of things, including your career experience, education, monthly income vs. expenses, and track record of meeting financial obligations.

8. Are there any fees involved in refinancing federal loans?

It depends on the lender, but SoFi allows you to refinance with no application, origination or prepayment fees.

9. Should I choose a fixed or variable rate loan?

Most federal loans are fixed rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable rate loan.

Here’s what you should know:

Fixed rate student loans typically have:

  • A rate that stays the same throughout the life of the loan
  • A higher rate than variable rate student loans
  • Payments that stay the same over the life of the loan
  • Variable rate student loans typically have:

  • A rate that’s tied to an “index” rate, such as the prime rate or LIBOR. SoFi’s variable loan rate is tied to the one-month LIBOR rate, and can change as often as monthly.
  • A lower initial rate than fixed rate student loans
  • Payments and total interest cost that change based on interest rate changes
  • A cap, or maximum interest rate. For example, SoFi 5- and 10-year variable loans are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR.
  • Generally speaking, a variable rate loan can be a cost-saving option if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise—taking your loan’s rate with it.

    10. What happens if I lose my job or can’t 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 it’s best to learn what they are before you refinance. SoFi, for example, offers Unemployment Protection to 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 3-month periods and capped at 12 months.

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

    11. Do refinance lenders allow co-signers/co-signer release options?

    Many private lenders do allow co-signers and some allow co-signer release options. SoFi allows co-signers but no option for co-signer release. However, if you have a co-signer and your financial situation improves, you can apply to refinance the co-signed loan under your name alone.

    What questions do you have about federal student loan refinancing? Submit then to the comments section below and we’ll do our best to answer them here.

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