Should You Refinance Your Federal Loans Through a Private Lender?

Jen Williamson Updated on January 23, 2020

If you’re like a lot of college graduates, you have multiple student loans, all through different lenders. Is it time to get them all in one place? There are pros and cons to refinancing your federal loans through a private lender, so it's important to carefully consider your specific circumstances.

New call-to-action

Let's start with the potential benefits of refinancing your student loans with a private lender.

Pro: One payment

The most obvious benefit to refinancing is replacing all of your old student loans with one new one. That means instead of making multiple payments per month, you'll only have to make one.

However, you don't have to refinance all of your loans if you don't want to. For example, you can just refinance your high-interest loans and leave your others parked where they are, that's fine, too. 

Pro: A better interest rate

The current lowest rate for federal Direct loans is ranges from 4.53% to 7.08%, while some private lenders will refinance your loans for a fixed interest rate of 3.14%

Of course, not everyone qualifies for rates that low. But if you have great credit, you might. You can also apply with a cosigner to improve your chances of getting an attractive interest rate. 

Refinancing is especially worth considering if you have one of the higher interest-rate federal loans, such as unsubsidized or PLUS loans. 

See also: Everything You Need to Know About Student Loan Refinancing

Pro: You could get out of debt faster

The problem with federal payment-relief options such as income-driven repayment, deferment, and forbearance, is that while you reduce your monthly payments (or pause them entirely), you also stretch out the payment period. And while student loan forgiveness sounds great, it can take decades to qualify.

This means you stay in debt longer—and pay more in interest over the long term.

When you refinance, you can shorten the timespan of your loan. This means you pay more on a monthly basis, but you pay your debt off faster and, with a lower interest rate, you pay less over time.

With refinancing, you can also opt to lengthen your payment to get your monthly payments as low as possible. It all depends on whether you want to prioritize wiping our your debt or having an increased monthly cash flow. 

Pro: You can refinance more than once

Under most circumstances, you can’t consolidate federal loans more than once. But you can refinance them again—and it’s smart to re-evaluate your options every few years. 

Don’t assume that your federal loans have better interest rates and terms than a private lender—it’s important to compare. Especially if you have great credit and higher interest-rate federal loans, it’s worth it to see if you can do better through refinancing.

Imagine Life Without a Student Loan Payment... Start Saving Now!

While refinancing offers lots of money-savings pros, there are a few cons to consider as well. 

Con: You lose access to income-driven repayment plans

If you fall under financial hardship and can no longer afford your payments, what happens to your student loan?

With federal loans, you can qualify for income-driven repayment plans such as Pay as You Earn, Income-Based Repayment, and Income-Contingent Repayment plans.

These all vary slightly, but the common element is that your monthly payment is determined by what you earn—so there’s a better chance you can afford it.

You don’t get these protections with private lenders.

Con: You may not get a better interest rate if you refinance

The most obvious reason to refinance with a private lender is to get a lower interest rate.  When you refinance, private lenders determine your new interest rate based on your credit score, income and debt, and other financial factors.

When you consolidate, the government determines your rate by calculating the average rates across all your original loans, and rounding up to the nearest one-eighth of a percent. Your credit score and finances don’t matter.

Consolidating with the government often won’t result in a lower interest rate. But in general, federal loans have lower interest rates than private loans. If you have lower interest-rate federal loans such as Perkins loans, it may make more sense to consolidate rather than refinance. 

In addition, refinancing may not make sense if your credit score is low. You may not qualify for a low enough interest rate to make refinancing your federal loans worthwhile. 

Con: You can no longer go into deferment or forbearance

If you really fall on hard times, the federal government will let you put your student loan on hold entirely. Under deferment (which you may qualify for if you go back to school), some loans do not accrue interest while on hold; whereas they do under forbearance.

Some private lenders offer their own version of forbearance and deferment; this is worth looking into.

Con: You lose access to student loan forgiveness

If you work for certain employers—usually in the public sector—you could qualify for Public Service Loan Forgiveness after 120 consecutive qualifying payments on your loan.

Once you refinance your federal student loan, you lose access to this option—no matter how many qualifying payments you’ve made. You will also lose access to student loan forgiveness that you may be eligible for after making 20 years of payments in an income-driven payment plan. 

Before making a move, it's a good idea to find out if you are eligible to have any portion of your debt forgiven. 

See also: The Ultimate Guide to Student Loan Forgiveness

Estimate your savings now

Check out our Student Loan Refinancing Calculator to find out how your finances could be affected by refinancing.  

Published in: Refinance

About the Author
Jen Williamson

Jen Williamson is a freelance writer living in Brooklyn. She has written for a variety of industries, including software, education, business, and personal finance. Prior to that, she worked at an adult literacy nonprofit in Philadelphia, where she coached nontraditional students in passing the GED test and applying for college. When she isn’t writing or reading—which is rare—she can usually be found planning her next travel adventure, training for a marathon, or sneaking in somewhere she’s not supposed to be. Read more by Jen Williamson

Refinance and Save Today With These Lenders

#1 - Nitro Recommended View More Details

Special offers for medical resident and fellow refinance products

  • Fixed rates: 2.49% - 6.31% APR
  • Variable rates: 1.88% - 6.15% APR
  • Minimum credit: 650
View More Details
Visit Splash View Loan Disclosure

Splash Financial is a leader in student loan refinancing with new rates as low as 2.49% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.

  • Low interest rates – especially for graduate students
  • No application or origination fees. No prepayment penalties.
  • Co-signer release program - you can apply for a cosigner release form your loan after 12 months of on-time payments
  • Specialty product for doctors in training with low monthly payment

Click here to see more of Splash's offerings and to see how you can save money.

#2 View More Details

For every loan they fund, they contribute to the education of a child in need

  • Fixed rates: 2.83% - 6.74% APR
  • Variable rates: 1.99% - 6.84% APR
  • Minimum credit: 660
View More Details
Visit CommonBond View Loan Disclosure

CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.

Of all the companies we reviewed, CommonBond has some of the best customer service. The company prides itself on being easy to reach by email, phone, or live chat. It offers networking events, expert panels, insider newsletters, and even has a program help borrowers who lose their jobs to find new ones. CommonBond also makes you feel good about choosing to refinance with them by donating money to an education nonprofit for each loan they write.

CommonBond Student Loan Refinance review

  • Unemployment protections - If you lose your job or decide to go back to school, you can delay your payments for up to 24 months.
  • Social promise - For every loan they fund, they also contribute to the education of a child in need.
  • Hybrid loan option - Offerings include a 10-year hybrid loan with fixed interest for the first five years, and variable interest for the final five.
  • Referral bonus - For every friend you refer who refinances their loans with CommonBond, you’ll earn a $200 cash bonus.
  • Qualification - Borrowers must have graduated at least 2 years prior if they want to apply without a co-signer. And borrowers in 6 states – Idaho, Louisiana, Mississippi, Nevada, South Dakota, and Vermont – cannot currently refinance through CommonBond.

Get a personalized review of your refinancing options with CommonBond today.

#3 View More Details

SoFi is the leading student loan refinancing provider. 

  • Fixed rates: 2.49% - 6.94% APR
  • Variable rates: 2.25% - 6.59% APR
  • Minimum credit: 650
View More Details
Visit SoFi View Loan Disclosure

$30 billion+ in refinanced student loans. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, there's no maximum on the amount you can finance. Some state restrictions may apply.

  • Serious savings: Save thousands of dollars thanks to flexible terms and low fixed or variable rates.
  • No hidden fees, no catch: No application or origination fees. No pre-payment penalties.
  • Fast, easy, and all online: Simple online application and access to live customer support 7 days a week.
  • Access to member benefits: SoFi members get career coaching, financial advice, and more—all at no cost.
  • 98% of surveyed members would recommend SoFi to a friend

Save thousands on your student loans and pay off your loans sooner. Find your rate.

#4 View More Details

Ability to apply for cosigner release after 24 consecutive payments. 

View More Details
Visit NelNetBank View Loan Disclosure

Give Your Life’s Journey a Jump-Start.

If you’re ready to put student loans in your rearview mirror, Nelnet Bank student loan refinancing offers low rates and flexible terms to help you start getting ahead.

  • VARIABLE RATES: 1.95% - 5.62% APR See Disclaimer
  • FIXED RATES: 2.48% - 6.62% APR See Disclaimer
  • AUTO DEBIT SAVINGS: We’ll knock .25% off of your interest rate when you enroll in auto debit. See Disclaimer
  • NO ORIGINATION FEES: No application, origination, or prepayment fees on Nelnet Bank loans.
  • HARDSHIP PROTECTION: Hardship forbearance helps protect against unexpected loss of income. See Disclaimer

See How Much You Can Save: Estimate your savings with a student loan refinance from Nelnet Bank.

#5 View More Details

Works with 300+ community lenders for higher approval chances

  • Fixed rates: 2.95% - 7.63% APR
  • Variable rates: 1.90% - 5.25% APR
  • Minimum credit: 660
View More Details
Visit LendKey View Loan Disclosure

Connecting student borrowers to a network of over 300 community lenders with low interest rates. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.

LendKey Student Loan Refinance review

  • Lightning fast rate check - 2-minute rate check with no impact on your credit score
  • More lenders, more options - see the best offers from over 300+ community lenders for higher approval chances
  • Life of loan relationship - With LendKey, your personal information will never be sent or passed on to third parties. Their customer service team is with you from the moment you land on their website until you've completely repaid your loan.
  • Unmatched benefits- Community lenders put people over profits and offer unique benefits like cosigner release after 12 on-time payments, interest only repayment options to keep monthly payments low, the largest unemployment protection period in the market, and more.

Get a personalized quote from LendKey now.

#6 View More Details

Best for borrowers who want to customize their repayment schedule to pay off debt fast.

View More Details
Visit Earnest View Loan Disclosure

Using technology, data, and design to build affordable products, Earnest's lending products are built for a new generation seeking to reach life's milestones. The company understands every applicant's unique financial story to offer the lowest possible rates and radically flexible loan options for living life.

  • Commitment-free 2 minute rate check
  • Client Happiness can be reached via in app messaging, email, and phone 
  • No fees for origination, prepayment, or loan disbursement
  • Flexible terms let you pick your exact monthly payment or switch between fixed and variable rates
  • Skip a payment and make it up later
  • Online dashboard is designed to make it easy to apply for and manage your loan

Click here to apply with Earnest and to see how much you can save.

#7 View More Details

16 different loan term options – more flexibility to pay down your loan faster

  • Fixed rates: 3.24% - 5.54% APR
  • Variable rates: 3.34% - 5.69% APR
  • Minimum credit: 680
View More Details
Visit CollegeAve View Loan Disclosure

College Ave Student Loans offers major help and minor stress. We’ll help guide you through the process to find the right loan term and interest rate for you and the family budget.

  • Fast rate check: Get your new rate in 60 seconds 
  • Instant credit decision
  • Super flexible terms: 16 loan terms available from 5 to 20 years
  • No fees to apply

Click here to see more College Ave offerings and to start saving today! 


I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

Save Money Now