Should you refinance your federal and private student loans?

Refinancing replaces one or more existing student loans with a new private loan. The refinancing lender pays off your current balance and issues a private loan that may offer a different interest rate or repayment term. Borrowers typically refinance federal and private student loans to reduce the overall cost of their debt or make repayment more manageable.

But refinancing does more than adjust the rate. When federal loans are refinanced, they are permanently converted into private loans. That means losing access to income-driven repayment plans, federal forgiveness programs and hardship protections.

Whether you should refinance federal and private student loans depends on the types of loans you have and whether the new rate and terms clearly improve your situation. For borrowers who carry both types of loans, a potential approach is to refinance private loans while keeping federal loans separate. However, you may consider whether a meaningfully lower rate outweighs the federal benefits you would give up.

Related: Here’s the Credit Score You Need to Refinance Student Loans

Federal loans include built-in protections that adjust to financial hardship. When you refinance federal loans, they are permanently converted into private loans. This change removes access to benefits such as:

• Income-driven repayment (IDR) plans
• Public Service Loan Forgiveness (PSLF)
• Federal deferment and forbearance programs

These programs can reduce required payments when income drops or eliminate remaining balances under qualifying conditions. Once refinanced, these options cannot be restored.

If you are considering refinancing federal loans, begin by pre-qualifying with several lenders. Pre-qualification uses a soft credit check that does not affect your credit score and allows you to see the actual rates and terms you may qualify for. This gives you real numbers to compare before making a permanent decision.

Refinancing federal loans may make sense to consider in situations like:

• You do not rely on income-driven repayment.
• You are not pursuing loan forgiveness.
• You hold a stable income and strong credit.
• The new interest rate is significantly lower.

After reviewing your pre-qualified offers, compare the projected interest savings against the federal protections you would lose. If the savings are minimal or uncertain, keeping the loan federal may provide greater long-term flexibility.

Unlike federal loans, refinancing private student loans does not involve giving up government protections. The decision typically comes down to whether you can qualify for better terms than what you have today.

After pre-qualifying and reviewing your offers, refinancing private loans may make sense if:

• You qualify for a lower interest rate.
• You can reduce the total interest without extending the repayment period.
• You want to pay off the loan faster.

If the new terms do not clearly lower your long-term costs, refinancing may not significantly improve your financial situation.

Use the steps below to evaluate refinancing based on your specific loan.

Step 1: Identify your loan types

If your loans are private, refinancing usually focuses on whether you can qualify for better rates or terms. If your loans are federal, refinancing converts them into private loans and permanently removes access to federal repayment programs, forgiveness options and hardship protections.

Step 2: Pre-qualify to see actual rates.

Pre-qualify with multiple lenders to view the interest rates and terms you may qualify for using a soft credit check. Comparing real offers over the advertised rates will help you make a more informed decision.

Step 3: Review any federal benefits you rely on.

If you use income-driven repayment, plan to pursue Public Service Loan Forgiveness, or expect income changes, refinancing federal loans could limit the payment flexibility you may need later.

Step 4: Compare total repayment cost, not just the monthly payment.

Calculate the total interest you would pay under your current loans versus your refinance offers. Lower monthly payments achieved by extending the term can increase the long-term cost, causing you to pay more over time.

Step 5: Decide Loan by Loan

You may find that you don’t need to refinance every loan. Some borrowers refinance private loans while keeping federal loans separate to preserve protections.

Related: How Often Can You Refinance Student Loans?

Refinancing usually involves these four steps:

1. Pre-qualify with multiple lenders

Start by pre-qualifying to see the interest rates and repayment terms you may qualify for. This allows you to compare realistic offers before proceeding with a full application.

2. Choose the lender that best fits your goals

Review your offers carefully. If your goal is to lower total interest, focus on the lowest rate and the shortest manageable term. If reducing your monthly payment is your priority, extending the term may lower your monthly amount but increase the total amount you’ll pay over time.

3. Submit a full application

Once you select a lender, complete a formal application and provide documentation, for example, proof of income and loan statements. This step typically includes a hard credit inquiry, which may temporarily affect your credit score.

4. Continue payments until payoff is confirmed 

Keep making payments on your current loan until the new lender confirms the balance has been paid off. After that’s settled, you can begin repayment under the new loan terms.