Does Refinancing Affect Student Loan Forgiveness?
Refinancing involves replacing an existing student loan (or multiple loans) with a new one from a different lender. You might refinance to lower your interest rate or get a longer term to make your monthly payments easier to manage. While refinancing could help you keep more money in your pocket in the short term, it’s […]
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Refinancing involves replacing an existing student loan (or multiple loans) with a new one from a different lender. You might refinance to lower your interest rate or get a longer term to make your monthly payments easier to manage.
While refinancing could help you keep more money in your pocket in the short term, it’s important to proceed with caution—refinancing your federal student loans with a private lender could mean sacrificing future federal student loan forgiveness.
Here’s what to know about refinancing and student loan forgiveness, plus some refinancing alternatives if you’re struggling to manage your student loan payments.
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If I refinance my student loans, can they still be forgiven?
The U.S. Department of Education doesn’t offer a refinancing option, but it does allow you to consolidate multiple federal loans with a Direct Consolidation Loan. This could be a good option to reduce the number of monthly payments you need to manage. But a Direct Consolidation Loan won’t necessarily reduce your payment amounts or interest rate.
Consolidating your federal loans involves weighing the average of all of your combined loans. This is the new interest rate on your Direct Consolidation Loan. As a result, you rarely see much, if any, interest savings on a Direct Consolidation Loan.
Meanwhile, when you refinance student loans with a private lender, you essentially apply and qualify for a lower interest rate than you currently pay on your student loans. This allows you to consolidate your loans into one payment and save money on interest.
For this reason, you may be tempted to refinance your federal loans with a private lender. However, federal loans have certain protections and benefits, including student loan forgiveness if you meet certain requirements.
When you refinance your federal loans with a private lender, you give up these benefits. While federal loan forgiveness is in a state of flux due to policy changes, you can currently get your federal student loans forgiven through a few avenues:
- Role-based programs: If you work in a qualifying field, including non-profits, teaching, or certain healthcare professions, you may be eligible for federal loan forgiveness through the U.S. Department of Education’s Public Service Loan Forgiveness (PSLF) or teacher loan forgiveness programs.
- Income-driven repayment plans: The U.S. Department of Education offers four income-driven repayment plans. These plans calculate your monthly student loan payments based on income and family size. When you enroll in one of these plans and make payments for a set period, the remaining loan balance is forgiven afterward.
- Loan discharge options: Federal student loan discharge is also possible in rare cases. For instance, there are discharge options if you’ve become totally and permanently disabled or if your school closes while you’re enrolled.
If you have private student loans and want to refinance, private student loan forgiveness generally isn’t an option. This is true whether you keep or refinance your existing loans with a new lender. There are some rare exceptions, though, which we’ll discuss.
Ask the expert
If you’re a low-income earner and can qualify for low payments on an income-driven (IDR) repayment plan, paying the low amount as long as possible until you reach the forgiveness date makes sense. However, if you don’t qualify for an IDR plan and are paying a high payment with a high interest rate, it may make sense to refinance for a lower interest rate and pay your student loans off as quickly as possible.
If you’re unsure whether you have federal or private student loans, you can check by reviewing your credit report. Get your free credit report at annualcreditreport.com and look at the account types and loan servicers. You can also check your billing statements or log in to studentaid.gov and click ‘My Aid’ to review your federal loan information.
Rare cases of private student loan forgiveness
Because private student loans are issued by private lenders and not the federal government, private student loan forgiveness is very uncommon. It generally only happens if the borrower dies or becomes permanently disabled.
However, private loans aren’t always forgiven in these cases—it can depend on the lender and loan terms and conditions.
Ask the expert
Private student loan forgiveness is rare. It’s important to talk to lenders to determine their policies. Some offer deferment or forbearance options. Some may discharge your debt with a total disability, which is very difficult to get approved for. Most lenders will forgive upon a borrower’s death, but your cosigner may still be on the hook for the amount owed.
While plans are in the works to expand federal student loan forgiveness, these plans won’t impact private student loans. So those with private loans don’t need to worry about missing out on potential loan forgiveness if you refinance.
Alternatives to refinancing student loans
If you have federal student loans and are struggling with your payments, you have a couple of options to consider before refinancing with a private lender.
Income-driven repayment
The U.S. Department of Education offers four income-driven repayment plans, which base your monthly payments on your family size and earnings. You’ll need a Direct loan to be eligible for income-driven repayment, but it’s possible to consolidate other loans with a Direct Consolidation loan to qualify.
Here’s a brief table comparing the options:
| Plan name | Monthly payment (% of discretionary income) | Repayment term (years) |
| Saving on a Valuable Education (SAVE)—formerly REPAYE | 10% | 20 undergrad loans 25 graduate or professional loans |
| Pay As You Earn (PAYE) | 10% | 20 |
| Income-based repayment (IBR) | 10% for loans after 7/1/14 15% for loans before 7/1/14 | 20 25 |
| Income-contingent repayment (ICR) | 20% | 25 |
Pros
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Payments are relative to your income
Monthly payments may be more manageable relative to your income.
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Forgiveness eligibility
Outstanding loan balances are forgiven at the end of your repayment term.
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Manageable monthly payments
Payments under PAYE and IBR plans will never exceed your 10-year Standard Repayment Plan payments.
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Won’t impact your credit.
Cons
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Recertification required
You must recertify your income each year.
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Monthly payments could increase
Your monthly payments will probably increase when your income increases.
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Payments could be higher under SAVE or ICR plans
Payments could exceed 10-year Standard Repayment Plan payments.
Deferment or forbearance
If you’re facing financial hardship, you might qualify for deferment or forbearance, depending on your circumstances.
When your federal student loans are put into deferment or forbearance, your payments are suspended or reduced for several months. This temporary relief could allow you to get back on track financially.
You’ll need to prove you’re enduring a financial hardship to qualify for deferment or forbearance, and interest may continue to accrue on your loans even if your payments are paused.
Pros
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Payments can be reduced or paused
Both allow you to temporarily pause or reduce your monthly federal student loan payments.
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No interest during deferment
Interest on certain subsidized loans doesn’t accrue in deferment.
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Won’t impact your credit.
Cons
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Must meet certain criteria to qualify.
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Interest accrues in forbearance
This means your total balance may increase
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Temporary solution.
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