Should You Refinance Federal Student Loans into Private Student Loans?

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Nick Mann

By Nick Mann

February 12, 2019

Student loan refinancing offers lower interest rates, better repayment terms, and consolidated payments. But refinancing is not for everyone. Consider the pros and cons of refinancing federal loans into private student loans carefully before moving forward.

Reasons to Stick with a Federal Student Loan

Federal student loans have lower fixed rates than private student loans, and better repayment terms.

Federal student loans offer income-driven repayment plans, where the loan payment is based on the borrower’s income, not how much they owe. This takes the stress off of borrowers who may otherwise have difficulty repaying their loans. It can be a good option for recent college graduates who are just entering the workforce and getting established.

Extended repayment allows borrowers to choose a longer repayment term, as long as 20, 25 or even 30 years. This allows borrowers to reduce their monthly payments considerably.

Because federal student loans aren’t credit-based, they don’t require a cosigner. This means borrowers don’t have to go through the often arduous process of finding someone to cosign for a loan. Parents or family members don’t have to concern themselves with covering a borrower and putting their credit on the line.

Federal student loans also offer advantages in terms of loan forgiveness and cancellation. Public service employees and teachers can get their federal student loans forgiven after a number of years. There are also proposals for possible widespread federal loan forgiveness. There’s a death discharge so a borrower’s debt doesn’t get charged against their estate in the event that they die. The total and permanent disability discharge (TPD) cancels a borrower’s federal student loans if they’re permanently disabled.

Some borrowers may also be eligible for a three-year deferment or forbearance if they experience an economic hardship. This lets them temporarily stop making payments or reduce how much they pay. There’s also a deferment for cancer patients.

The Advantages Refinancing into a Private Student Loan

Student loan refinancing lets borrowers choose between a fixed or variable interest rate. Although a variable rate runs a higher risk because it can increase at any time, it can also lower the interest rate. This may be a good option for borrowers who plan on paying off the private loan before interest rates rise too much.

With Federal Parent PLUS loans, a borrower might be able to get a lower interest rate on a private loan. However, they’ll need to have an excellent credit score of 780 or more.  

Refinancing also allows a borrower to make just one single payment each month. This creates an added convenience and makes it easier to stay on top of payments. However, it prevents the borrower from paying off the highest-rate loan quicker.

The Disadvantages of Refinancing

While it’s true that refinancing can decrease monthly payments by extending a loan’s duration, it may also increase the interest rate. Even if it doesn’t increase the interest rate, the borrower will still pay more in the long run. With private student loans being credit-based, they often require a cosigner. And finding one is sometimes easier said than done, especially if the borrower is considered high-risk.

Private student loans may lack flexibility if a borrower runs into financial hardship. While federal student loans may give provide some wiggle room if they hit a roadblock, private lenders typically won’t. For example, private lenders are unlikely to offer extended repayment on a fixed-rate private student loan. If a borrower is unsure of their ability to make monthly payments, refinancing probably doesn’t make sense.

Refinancing also means that a borrower no longer has student loan forgiveness and cancellation options and other advantages of federal student loans. Once they make the switch, those benefits are off the table.


Is Refinancing a Good Idea?

Many people automatically assume that refinancing federal student loans into private student loans is smart. But, this isn’t always the case.

Sticking with the federal student loans is generally the best option because of the lower interest rates, better repayment terms and benefits.

If you do decide to refinance, you’ll want to be certain that the terms are in your favor.

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Our Loan Refinancing Calculator shows you how much you can lower your monthly loan payments or total payments by refinancing your student loans into a new loan with a new interest rate and new repayment term.

Refinancing a student loan could possibly lower your interest, saving you money. Consider the pros and cons of student loan refinance before you decide. Refinancing federal loans into a private loan means a loss of all of the federal loan benefits – income-driven repayment options, potential for loan forgiveness, generous deferment period if you lose your job or have an economic hardship, possibly loans that are subsidized, and potential widespread forgiveness. 

If you have decided that student loan refinance is right for you, check out our list of the best lenders to refinance student loans

At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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