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That’s because federal loans come with some of the lowest rates out there, plus more favorable repayment terms and benefits than private lenders can offer. But if none of the benefits of federal loans apply to you, then refinancing could help you save on interest and give you access to perks that could help your career.
Refinancing federal student loans works the same as refinancing any other private student loan: You take out a new loan to pay off your current debt, ideally with more favorable rates and terms. While the process can vary depending on the lender, you might follow these steps.
Many student loan refinancing companies accept both private and federal loans, though not all. And those that do warn that most borrowers won’t be able to find a better deal. If you think you can, start by checking out these three providers.
SoFi is the closest thing to a household name when it comes to student loan refinancing. Its loans could be ideal for young professionals looking to strengthen their career. While you’ll lose the benefits that come with federal loans, it offers unemployment protection, access to wealth advisers and career support. But it doesn’t offer cosigner release, and you need excellent credit to get a truly good deal.
Earnest offers some of the lowest rates out there when it comes to student loan refinancing — both fixed and variable. And if you’re considering graduate school, this lender will let you hold off on full repayments for up to 36 months while you’re enrolled. It’s also one of the few lenders that refinances Parent PLUS Loans. However, it’s not available in all states and you need strong personal finances to qualify.
CommonBond
Borrowers who want to pay it forward will like what CommonBond’s all about. It’s one of the few refinancing providers out there with a social mission — part of the company’s profits goes toward education initiatives in developing countries. And like Earnest, it also refinances Parent PLUS Loans in addition to other types of federal and private student loans. It’s not available in Mississippi, Idaho, Vermont or Nevada, however.
No, the government doesn’t refinance federal loans. Since everyone gets the same rates on their student loans, you wouldn’t have a chance to become eligible for a better rate down the line.
It does, however, offer a Direct Consolidation Loan. This allows you to make one monthly repayment instead of multiple monthly repayments. The rate you get is a weighted average of the interest on all of the loans you’re consolidating.
Not sure if refinancing your federal loans is a good idea? Ask yourself these questions:
If you have excellent credit, a steady income and few other debts, you could potentially qualify for student loan refinancing at a better rate than you have on your federal loans. Especially if you have Direct Unsubsidized or PLUS Loans.
Try prequalifying with a few lenders to get an idea of what rates you’d be eligible for. Then, use our loan comparison calculator to find out how much you can save — if at all.
By refinancing your federal loans, you won’t have access to the government’s extensive list of repayment plans. Some are based on your income, while others increase over a period of time to give you more affordable repayments at the beginning of your career. But if you’re in a field that pays enough to afford making standard repayments on a shorter loan term, you might not want to take advantage of these plans anyway.
Anyone who works for nonprofits, the government or other public service positions are eligible to have their entire federal debt load forgiven after making 10 years of repayments. Teachers are also eligible for partial forgiveness after working at a low-income school for five years. And the government forgives whatever you don’t pay off after 20 or 25 years on an income-based repayment plan.
If you’re eligible for any of these programs, refinancing probably isn’t worth it.
The government forgives your student loans if you become permanently disabled and can’t work. It also forgives your student debt if you die before paying it off. You could lose these protections if you refinance to a private student loan. One way to keep this protection is to get disability and life insurance, but that might defeat the purpose of refinancing if you were trying to save money.
There’s a reason many student loan refinancing companies don’t recommend refinancing federal loans — only the most creditworthy borrowers can save and you’ll lose access to a long list of benefits. But if you wouldn’t be able to take advantage of those benefits anyway and have the means to qualify for better rates and terms, it might be worth considering.
You can check out our student loans guide to learn more about how they work. Or read our guide to student loan refinancing to compare even more lenders.
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