If you have federal student loans, you may have considered refinancing to get a lower interest rate. Depending on your credit, income and other financial factors, a private lender may offer you a lower rate than the rate on your federal loans.
That can sound appealing. But refinancing federal student loans is about more than the interest rate, and you could be giving up valuable federal benefits without fully understanding the tradeoff.
When you refinance federal student loans with a private lender, the private loan pays off your federal loans and replaces them with a new private loan. Once that happens, those loans are no longer eligible for federal student loan programs and protections.
That means a borrower needs to look at two questions:
How much can refinancing save me each month and over the life of the loan?
and
Is the potential savings worth giving up federal benefits?
For some borrowers, refinancing may make financial sense. For others, keeping federal loans may be more valuable because of the flexibility they provide if their financial circumstances change.
Start With the Interest Rate
Federal student loan interest rates are fixed for the life of the loan. For loans first disbursed between July 1, 2026, and June 30, 2027, the rates are:
- 6.52% for Direct Subsidized and Direct Unsubsidized Loans for undergraduate borrowers
- 8.07% for Direct Unsubsidized Loans for graduate and professional students
- 9.07% for Direct PLUS Loans for parents and graduate or professional students
These rates are fixed and do not change over the life of the federal loan. Borrowers who received federal loans before July 1, 2026, may have different interest rates.
Private refinance rates vary by lender and borrower. Lenders may consider factors such as credit history, income and existing debt when determining the rate offered.
For example, SoFi’s currently advertised 10-year refinance rates include both fixed and variable options. Its 10-year fixed rates are currently advertised from 5.82% to 10.99%, while its 10-year variable rates are advertised from 7.49% to 10.99%. The rate a borrower actually receives depends on the individual application.
That means refinancing can produce a lower interest rate. But the potential savings may be smaller than a borrower expects, particularly if the federal loan already has a relatively low fixed rate.
What Could the Difference Actually Mean?
Consider a hypothetical borrower with $50,000 in federal student loans and 10 years remaining. At a 6.52% interest rate, a fully amortizing 10-year payment would be approximately $568 per month. A hypothetical 5.82% fixed refinance rate on the same $50,000 balance over the same 10-year period would produce a payment of approximately $551 per month.
That’s a difference of about $17 per month, or roughly $2,100 in interest over the 10-year repayment period, assuming the rates and terms remain exactly the same.
For a borrower with a federal loan at 8.07% or 9.07%, the potential savings could be larger. But there is an important point:
The savings are not the entire financial decision.
The borrower also needs to consider what happens if their income falls, they lose their job, they become disabled, they enter public service or otherwise need the federal protections attached to their loans.
A savings of a few hundred dollars a year may look different when compared with the value of having federal repayment and relief options available during a financial hardship.
Look at the Total Cost — Not Just the Monthly Payment
A lower monthly payment does not automatically mean a lower-cost loan.
A private lender may offer a longer repayment term that reduces the monthly payment but increases the amount of interest paid over the life of the loan.
For example, a borrower might see a significantly lower monthly payment by extending a loan from 10 years to 15 or 20 years. But making payments for additional years can result in paying more interest overall.
The best comparison is therefore not simply:
“What will my new monthly payment be?”
Instead, compare:
Current loan balance + current rate + remaining term + total remaining interest
with:
New loan balance + new rate + new term + total interest
Then consider the federal benefits you would give up by refinancing.
Fixed vs. Variable Private Rates
If you are considering refinancing, pay close attention to whether the new loan has a fixed or variable interest rate. A fixed rate generally remains the same for the life of the loan. A variable rate can change as its underlying index changes. SoFi, for example, states that its variable refinance rates are tied to an index and can change.
That creates an important difference between a variable private refinance loan and a federal Direct Loan, whose interest rate is fixed for the life of the loan.
When comparing refinance offers, look at:
- Whether the rate is fixed or variable
- The maximum possible variable rate
- The repayment term
- The monthly payment
- The total amount you will repay
- Whether there are fees or prepayment penalties
- What happens if you experience financial hardship
Your Credit Matters
Private lenders determine refinance eligibility and interest rates based on their own requirements.
Factors may include your credit history, income, existing debt and other financial information. A strong financial profile may help you qualify for a lower rate, while another borrower may receive a substantially higher rate or may not qualify.
That is why advertised rates should not be treated as the rate every borrower will receive. The important number is the actual offer you qualify for.
When Could Refinancing Make Sense?
Refinancing may be worth considering if you:
- Qualify for a meaningfully lower fixed interest rate
- Have stable income and can comfortably afford the new payment
- Have compared the total cost of both loans
- Are not pursuing PSLF or another federal forgiveness program
- Do not expect to need federal income-driven repayment options
- Understand and accept the federal benefits you would lose
- Have reviewed the new loan’s terms, including its repayment period and any fees
- Do not need federal deferment or forbearance protections
Even then, the potential savings should be large enough to justify giving up federal protections.
When Should You Be Cautious?
Take extra care before refinancing if you:
- Have federal loans with relatively low fixed interest rates
- Are being offered only a small reduction in your interest rate
- Would need to significantly extend the repayment term to lower your monthly payment
- Are considering a variable-rate private loan
- Have an unstable or unpredictable income
- May need federal repayment relief
- Are pursuing PSLF or another federal forgiveness program
The smaller the potential savings, the more important it becomes to consider what you are giving up.
The Bottom Line
Refinancing federal student loans can reduce your interest rate or monthly payment. For a borrower with strong credit, stable income and a significantly better private fixed-rate offer, the potential savings may be meaningful.
But a lower interest rate is only part of the equation.
Before refinancing, calculate the actual savings over the remaining term of your loan. Then consider whether those savings are enough to justify giving up federal student loan protections. A lower interest rate is valuable but so is having options when life doesn’t go according to plan.
Before making a permanent change to your loans, review your options with a helpful advisor at My Education Solutions and carefully compare the terms of any private refinance offer.
