Refinancing Student Loans Is Finally a Good Option for Borrowers

The era of student loan refinancing may finally be here.

For years, rates on government loans didn’t matter because pandemic-induced payment forbearance meant interest wasn’t accruing. Plus, refinancing turns a federal loan into a private one, and private loan issuers weren’t subject to the moratorium. That debt also isn’t eligible for government forgiveness programs.

Now, private lenders say they’re seeing an uptick in activity following the presidential election as students give up on the notion that their government loans will be forgiven. And after multiple cuts to interest rates, those weighed down by student debt may be able to lock in a much lower monthly payment.

For those looking to save some cash, now is the best time in years to refinance their loans as private lenders compete with each other to win new customers, said Andrew Paulson, co-founder of StudentLoanAdvice.com. He said he has seen borrowers with interest rates of 8% or 9% on their graduate school debt who are now finding refinancing options as low as 5%.

“Part of it is that these private lenders have been starved for refinancing,” Paulson said.

Federal loan payments were initially paused early in 2020 and technically restarted last year — but a 12-month grace period meant there was little reason to settle up the debts. That concluded at the end of September and credit bureaus will soon receive reports of missed payments, hurting credit scores.

Donald Trump’s election victory, meanwhile, appears to have dashed borrower hopes for loan forgiveness. The Supreme Court nixed President Joe Biden’s major loan forgiveness plan in 2023, and income-driven repayment programs like the Savings on a Valuable Education (SAVE) plan may not survive in the second Trump administration.

That means finding the lowest interest rate possible could quickly become an important factor for borrowers who are once again making payments after the end of a four-year leniency period. Only about half of student loan borrowers made a payment in September, according to data from credit reporting agency TransUnion.

Advantages of Refinancing

The cost of a federal loan depends on when it was taken out. For the 2024-25 academic year, the rate for an undergraduate federal loan was 6.53%, the highest in more than 15 years. Graduate loans came in at 8.08%.

Private lenders like SoFi and Earnest now offer rates lower than that, starting at 4.49% and 4.29%, respectively, for fixed-rate loans.

SoFi and Citizens Bank both said their firms experienced an influx of refinancing in the second half of the year, especially after the election. Earnest’s tool that gives users a quick rate estimate saw checks double since the summer, according to Chief Executive Officer David Green.

Brittany Brinckerhoff, financial adviser at Hilltop Wealth Advisors, recommends refinancing to borrowers who plan to pay off their loans in full without the help of government forgiveness programs.

Potential Downsides

Refinancing a government loan has its drawbacks. The move shuts off the option to use federal loan benefits like income-driven repayment plans, debt forgiveness programs and payment suspensions during economic hardship.

Stephan Shipe, founder of Scholar Financial Advising, recommends mapping out a career plan before refinancing. Doctors, for example, can qualify for public service loan forgiveness if they work for not-for-profit hospitals — but not in private practice.

Advisers also recommend scouring the fine print for hidden costs. Most private issuers don’t charge for applications or originations, but there could be fees for not paying on time. Private lenders are also often less flexible than the government when a borrower loses their job or becomes disabled, Brinckerhoff said.

Applying to refinance a loan may temporarily hurt a borrower’s credit score as the lender evaluates the ability to repay, which could make a big purchase in the near term more challenging.

“While it’s only a small piece of the credit score calculation, it could still be impactful if you were hoping to apply for a mortgage or a car loan or a new credit card around the same time as refinancing your loans,” Brinckerhoff said.