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In this new and strange environment, complete with social distancing, managing school and work from home and the stock market taking a nosedive, you may be wondering if you will get any financial relief if you are repaying student loan debt. The answer in the short term is ‘yes’. On March 20, 2020, the US Department of Education announced that all federal student loans will be eligible for 0% interest for 60 days, starting on March 13th. Considering that student loans have never been interest-free since the loan program began, you might be thinking this is a good time to refinance your student loans so you can possibly get a lower interest rate.

Since the Federal Reserve recently cut interest rates dramatically in response to economic issues related to COVID-19, loan refinancing might normally make sense. However, the Federal Government assigns fixed interest rates to student loans (with the numerical rate set at the time your loan is first disbursed to you) which means that your loan interest rate will never go up but unfortunately it will never go down either. 

So the interest rate you have for each of your federal student loans will remain the same throughout the entire life of your loan even if you decide to enroll in an income-based repayment program. One opportunity to potentially get a lower interest rate on your student loans would be to move your loans to a private lender. This would mean leaving the federal student loan program thereby giving up any student loan borrower protections that the Federal Government provides.

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Refinancing federal student loans with private loan repayment: pros and cons

If the interest rate offered by a private lender is both fixed-rate and significantly lower than the interest rate you are currently paying, you have a good credit history and score, and you have an income that you expect to remain steady long enough for you to repay the loan in full, then switching to the private lender as a strategy for refinancing federal student loans may make financial sense. For example:

  • Federal Student Loan
    • $20,000
    • 10-year repayment
    • 6.8% fixed annual interest rate
    • $228.86/monthly payment
    • $7,463.82 total interest paid
  • Private Student Loan
    • $20,000
    • 10-year repayment
    • 4.5% fixed annual interest rate
    • $206.50/monthly payment
    • $4,708.37 total interest paid

However, if your income is variable or unsteady and/or your credit has issues, you may want to keep your loans in the federal program because there are no credit requirements, your interest rate will stay the same for the life of your loan, and you remain eligible to apply for the alternative repayment programs that the Federal Government offers should you ever need to. Private lenders, on the other hand, are not required to offer any ‘safety net’ assistance should your ability to repay your student loans change.

Loan consolidation

If you have multiple student loans, another option that may lower your interest rate is the Federal Loan Consolidation program. The Federal Loan Consolidation program allows you to bundle your separate federal student loans for refinancing into one new student loan with one payment and one interest rate. The interest rate for a Federal Consolidated Loan is determined by combining the weighted average of all the interest rates from your separate loans and then rounding the resulting interest rate up to the nearest 1/8th of 1%. Depending on the interest rate for your loans before consolidation, after consolidation, you may have a lower monthly loan payment and/or have less total interest to pay over the life of the loan by refinancing federal student loans with this method.

Generally, loan consolidation is most effective when your loans with the largest balance also have the lowest interest rate compared to your loans with smaller balances. 

You should use a loan consolidation calculator to determine any savings based on your specific loan balances, interest rates and repayment time. After you do your homework, if you decide that federal loan consolidation would be a good option, you will need to contact your loan servicer to apply.

If you are strictly concerned with lowering your monthly payment versus lowering your interest rate or the amount of interest you pay in total, the US Department of Education has a student loan repayment simulator that allows you to compare the monthly payments and interest costs for your loans for each of the federal repayment programs (based again on your loan balances and interest rates). Just like with the Loan Consolidation program, you can apply for a federal repayment program though your loan servicer or through the US Department of Education’s online portal.

Actionable Steps


Know all your information

Go to the National Student Loan Data System (NSLDS) to find out the status of your loans including your balance(s), loan term(s), interest rate(s), and expected monthly payment(s). You can also find out which loan servicer is servicing your loan(s).


Research and compare

Research and compare private student loan interest rate and repayment terms. Use an online student loan calculator to find out how much you might save in total interest paid over the life of the loan. If you have multiple federal student loans, use a loan consolidation calculator to see if consolidating your loans would save you interest costs.


Look at different repayment programs

Consider whether or not you might ever need to use the borrower protections that federal student loans have, including income based repayment options and repayment deferrals or forbearance before switching your federal student loans to a private lender. Use the federal student loan simulator to find out more about how your loans might look in different repayment programs.


Contact your loan servicer

Contact your loan servicer to apply for federal loan consolidation or an income based repayment plan. Be prepared to provide information about your income and family size.

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About the Author

Dawn Torres-Gale, AFC

Dawn Torres-Gale, AFC

Accredited Financial Counselor

In 2008, Ms. Torres-Gale was chosen by the Financial Industry Regulatory Authority (FINRA) Foundation to be part of a select group of military spouses. Through this, she received FINRA sponsored training from the Association of Financial Counseling, Planning and Education and became an Accredited Financial Counselor® in February 2012.
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