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Should You Refinance Federal Student Loans?

Blog Author ProfilePeppyWallet Editorial Team
Posted on August 17, 2019
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Whether or not you should refinance your student loans is an important decision to make since it has the opportunity to save you thousands or even tens of thousands of dollars in interest throughout the life of your loans. Refinancing private loans is almost always a good idea if the numbers work out in your favor and you can save money from reduced interest. Refinancing federal student loans is a trickier situation, and we'll explain why.

Student loan refinancing

Student loan refinancing is essentially when a student loan borrower decides to consolidate their currently existing student loans, whether they be federal, private or even both, into a single, new, and usually very different student loan, where ideally, the interest rate is lower than the weighted average interest rate of all the previous student loans if they were bundled up together.

When you decide to refinance your student loans, you are now making a single monthly payment to only one student loan lender. And if interest rates have dropped since you took out your original student loans, and your DTI has improved and your credit profile and income-earning potential have also improved, the lender may offer a lower interest rate and a reduced monthly payment compared to the total number of previous monthly payments, which should allow you to save money (sometimes big time) and even pay off your student loan balance in full faster.

Student loan refinancing may not make sense, however, for federal student loans, since these loans usually qualify for federal repayment plans and student loan forgiveness and other protection benefits.

Before deciding to refinance your federal student loans, consider the following:

1. Understand how much money you can potentially save by refinancing your student loans

The new interest rate and monthly payment you'll be paying on your new student loan will be a function of your unique financial characteristics, so it's a good idea to try to quantify right off the bat how much you can potentially save when you refinance your student loans.

When you refinance your federal student loans, you will lose access to federal repayment plans, which could include forbearance options and federal deferral. However, many private refinance lenders allow you to defer your monthly payments or can even temporarily pause your monthly student loan payments from a year or so if you end up losing your employment position or start to face some sort of qualified economic hardship.

Our student loan refinancing calculator helps you calculate how much money you can save from refinancing your federal student loans and even your private student loans.

For example, if you have a $40,000 balance in student loans with an interest rate of 8% and a 12 year payment plan and you end up refinancing your student loans to a 4% interest rate and 10 year payment plan, you could save around $13,752 in interest over the course of your loan.

2. Determine if you would want to use income-driven repayment plans

Federal student loans offer multiple types of income-driven repayment plans for student loan borrowers. These types of repayment plans include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Based Repayment (IBR), and other types of repayment plans. PAYE repayment plans, for example, have certain pros and cons attached to them:


This repayment plan helps low-income borrowers, so if you can qualify, you would have reduced monthly payments, as well as more time to pay off the loan and after 20 years your remaining balances would be forgiven. Additionally, there is an interest payment benefit. Your interest accumulates on your loans each month, but if you can't cover the interest with your monthly student loan payment, the federal government will actually help you by paying the difference for as many as three consecutive years on the the subsidized portion of any Direct Consolidation loans and Direct Subsidized Loans.

If you are interested in utilizing federal loan forgiveness plans or an income-driven repayment plan, it could be a good idea to refinance only your private student loans while keeping your federal student loans outstanding.


Since your interest accumulates on your loans each month, the overall loan will typically take more time to pay off since you will be paying more in interest. Additionally, you need to submit formal statements which show your income each year, so your monthly payments can be adjusted based off your earnings. Only Direct Loans are eligible for the PAYE repayment plan. Finally, if you do earn any loan forgiveness after a decade or two, you'll have to pay taxes on this student loan forgiveness.

3. Identify federal student loans with high interest rates

Typically, out of the majority of federal student loan types, loans from the Parent PLUS Loans camp or Grad PLUS Loans from graduate schools have pretty hefty interest rates. If you're a recent graduate student who finished medical school, dental school, law school or their MBA, and have seen your credit profile recently improve and you've landed your dream job within a couple months of graduating, refinancing your federal loans could also help reduce your interest rate, get a more favorable maturity term and save you money over the long run.

4. Understand your new student loan refinancing terms

Rate structure

Federal loans only offer fixed interest rates, so depending on which time in the interest rate cycle you take out your loans, each student loan borrower will be paying the same rate on the same loan type, regardless of their unique credit profile. For example, interest rates for Subsidized loans for undergraduates were 4.53% on or after July 1, 2019, and before July 1, 2020. One key advantage is that refinancing your student loan provides you with the option to accept a lower interest rate, especially if the market environment has shifted in your favor, along with your credit profile having improved.

Maturity flexibility

Private loans also usually offer more flexibility in terms of the maturity timelines for student loans. If you have a federal student loan with a maturity in 15 years, and your credit profile has improved, refinancing at a lower rate along with a lower maturity, such as 5-10 years, could save you additional interest over time. This allows you to even pay off the loan faster in the future after you refinance, if you get a promotion at your job or begin to better manage your monthly spending, since student loans don't have any repayment fees.

Next Steps

If your credit profile has improved, received a job with more steady or larger income and want to save money from interest or even pay off your student loans faster, student loan refinancing could be a great option. Even if you're not sure if you can qualify for refinancing, obtaining a quote for your rate is free and usually takes less than three minutes online. Additionally, refinance lenders usually do a "soft" credit pull, so there is no impact to your current credit score. This is especially useful if you want to shop around and want to apply to a couple of places to see who can give you the best rate.

Here are some of the best refinance lenders

Variable APR

1Important Disclosures for Earnest

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest's fixed rate loan rates range from 2.98% APR (with autopay) to 5.89% APR (with autopay). Variable rate loan rates range from 1.99% APR (with autopay) to 5.74% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of December 7, 2020 and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 12/7/20. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2Important Disclosures for CommonBond

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.

3Important Disclosures for LendKey

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any education institution. Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810. As of 12/07/2020 student loan refinancing rates range from 1.99% to 8.56% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.

The team members at PeppyWallet pride themselves in finding and suggesting services and products that they believe are of high quality and have the potential to positively change a student loan borrower's financial circumstances. We may earn an advertising fee or sales commission when we recommend various services and products to you, which is how we maintain our site and education platform. Be sure to read the fine print to help you understand your product's or service's terms and conditions. PeppyWallet is not an investment advisor or lender, and is not involved in the investment or loan approval process, and does not make investment related or credit decisions. Any terms and rates which are listed on our website are our latest estimates but are subject to change at any time, and we cannot guarantee that they are up-to-date.