Refinancing Federal Student Loans

By Jon O'Donnell Updated on May 7, 2019

Most people with student loans owe at least some of that money to the federal government. Government-backed loans are usually the first step for borrowers, and with good reason. They are widely accessible, have fixed interest rates, and carry many benefits. But there are some significant drawbacks, too. Among the biggest is that there is no way to renegotiate the interest rate through the federal government if economic conditions change.

Borrowers who are overwhelmed by multiple high-interest student loans often assume that consolidating them through the government’s Direct Loan Consolidation program will help them lower their interest rate. Unfortunately, that is not the case. Although Congress has considered bills that would allow college grads to refinance through the government at lower rates, none of the proposed legislation has passed.

Fortunately, there is another option. Private refinancing is an alternative that can streamline your student loans into a single payment and lower the interest rate. It’s not a decision to take lightly, because borrowers can lose income-based repayment or loan forgiveness benefits. But for people who don’t qualify for loan forgiveness, it can be a smart way to get out of debt faster and lower overall costs.

Here’s what you need to know about the pros and cons of both private refinancing and federal consolidation:

Refinancing with a private lender

A wave of innovation and increased competition in recent years has transformed the student lending industry and resulted in lower interest rates and more repayment options for borrowers. College graduates who refinance their student loans with a private lender can bundle both private and federal loans into a single payment, often with better terms.


  • If you have good credit, you might be able to get a lower interest rate by refinancing with a private lender. Our recent analysis found that borrowers who refinanced with private lenders saved an average of $259 a month and $19,231 over the life of the loan.
  • Private lenders offer both fixed and variable interest rates. Some lenders also have hybrid rates.
  • Both private and federal student loans can be consolidated through private refinancing.
  • Private lenders offer a greater variety of time frame options than the federal government.
  • Many private lenders offer networking events, career development resources, happy hours, and other customer service benefits.


  • Refinancing federal loans with a private company makes you ineligible for federal income-based repayment and loan forgiveness programs. If your income is low, or you work in the public service sector and could eventually qualify for loan forgiveness, it’s important to weigh the value of those benefits against potential savings from refinancing.
  • Variable interest rates are generally lower than fixed rates and can look very attractive, but they can go up significantly over time. Consider the length of your loan and assess your risk tolerance before choosing a variable rate.

Private student loan refinancing can make your life easier and save you money at the same time.  Some of the best lenders for refinancing are:

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Federal student loan consolidation

Because of the way federal student loans are disbursed, it’s common for people to graduate with a patchwork of loans from each year of school. The Department of Education’s Direct Consolidation Loan program is free and allows borrowers to consolidate multiple subsidized and unsubsidized federal loans into a single payment. But there are several important limitations.


  • You can remain eligible for most income-based repayment and loan forgiveness programs. However, you might lose progress toward loan forgiveness. Most loan forgiveness programs require at least 10 years of consistent payments to qualify. Consolidating student loans resets the clock to zero, so you would have to start the 10-year cycle over again.
  • You can select standard, graduated, or extended repayment plans.
  • Federal consolidation doesn’t require a credit check.
  • You may be able to consolidate your student loans, even if one or more of them is in default status. Federal consolidation is a way to rehabilitate loans and potentially remove the default from your credit report.


  • Federal consolidation doesn’t lower your interest rate, and might even increase it slightly. The consolidated loan would have a fixed interest rate based on a weighted average of your pre-existing loans. That rate would be rounded up to the nearest eighth of a percentage point.
  • You cannot consolidate any private loans through the federal program.
  • Federal consolidation does not save you any money on total repayment, and might cost more if you lengthen the time frame for paying off your debt.
  • Including parent PLUS loans in the consolidation can disqualify the entire sum from income-based repayment.

Which strategy is right for you?

If you’re earning a good income and have an above-average credit score (650 or higher), it makes sense to explore both federal and private consolidation options. Refinancing your student loans with a private lender could give you the ease of a single payment and also save you hundreds of dollars each month.

It’s easy to find out if refinancing could save you money, and there’s no risk to inquire. Most modern student loan refinancing companies have online applications that take less than 15 minutes to complete, with no impact on credit. Nitro regularly reviews student lenders. The following are the companies we consider the nation’s best banks for student loan refinancing, based on their interest rates, transparency, product offerings, track record, ease of applying, and customer service.

If you’re looking to consolidate your student loans and save money at the same time, we recommend that you start here!

Published in: Refinance

About the Author
Jon O'Donnell

Jon is a writer and marketer for Nitro who is passionate about bringing transparency to the student loan process along with providing families with the information needed to make smart financial decisions. He also just recently refinanced his student loans allowing him to pay them off 5 years faster all while saving an additional $152/month. As he continues to pay them off himself, he strives to help others do the same. Jon also has a long history of connecting people with educational opportunities to help them improve their careers and their overall personal finances. In his free time you can find him reading travel blogs and researching destinations around the world in search of his next adventure. Read more by Jon O'Donnell