Some college graduates are being overwhelmed with the amount of student loan debt they collected in the two to six years (or more) of college. Each year brings on new expenses and new loans to cover those expenses, and these expenses seem to increase annually. At any rate, student borrowers are leaving college with around $30,000 in student debt on average, contributing to the lump sum of $1.4 trillion. Over 90 percent of student debt is federal student loan debt.

Such large sums of debt can burden new graduates, but luckily, there are ways to alleviate these burdens. Private companies and banks offer a service known as private student loan refinancing and consolidation. For those who qualify, refinancing and consolidation is a useful way to simplify monthly payments and reduce the interest rate on student debt.

Can You Refinance Federal Student Loans?

Yes, federal student loans may be refinanced through private lenders. However, when federal loans are refinanced, they lose their federal benefits such as the six-month grace period. Additonally, graduates lose access to income-driven repayment plans and potential loan forgiveness after a set number of years.

Many student loan refinancing companies will provide a qualified interest rate with a “soft” credit check that will not affect your credit score. This allows borrowers to shop around before applying to a refinancing lender and calculate potential savings.

Benefits and Drawbacks of Refinancing Student Loans

College graduates are primarily hoping to reduce interest rates, reduce monthly payments, and possibly save money over the term of their loan through refinancing. These are the main benefits to the financial service: saving money and getting debt relief. The decision to refinance federal loans should be based on these benefits weighted against the potential setbacks.

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If graduates are currently participating in an income-based payment plan, they may want to reconsider refinancing their federal student loans. Federal loans lose any benefits under an income-driven repayment (IDR) plan when they are refinanced with private lenders. Additionally, graduates will lose the possibility of loan forgiveness in 20 years. Weighing the savings of an IDR plan and forgiveness against student loan refinancing is a good starting point to figuring out if submitting an application is worth it.

If you work as a federal employee such as a teacher, or for a nonprofit, you may not want to refinance your federal loans since these occupations are more likely to be eligible for loan forgiveness after making regular payments for a set number of years.

While refinancing can be helpful, borrowers should weigh all the options available to them; review their financial status; and speak with family, a financial advisor, a college guidance counselor, or other certified professionals who can help review the pros and cons of refinancing before making a final decision.