With interest rates rising and federal student loan payments due starting in October, now might be a good time to consider refinancing your federal (or private) student loans.

But maybe you’ve been in a holding pattern for so long — the payment pause will have lasted more than three years when it ends — that you just can’t bring yourself to make a change. Maybe you’re thinking that you might as well enjoy the last months of the payment holiday or that you should wait until you’ve figured out if you would benefit from participating in the Department of Education’s SAVE program. You may even be wondering if the president’s proposed alternative approach to student loan forgiveness, announced in June, could eventually result in some of your student loan balance being forgiven.

Of course, only you can know if and when it seems right to refinance. But to help you screen out the noise so you can hear the signal, here are some key considerations to think about.

If you’re not sure whether, or when, to refinance your student loans, reframing the factors you are weighing can help. Answering these questions may give you the clarity and confidence you need to make a decision about refinancing.

1. What type of loan is it?

The key here is federal vs. private student loans. For private student loan borrowers, there are no federal benefits to take into account, so the decision is (relatively) simple: You need to determine if refinancing gives you benefits like lower payment, lower rate or quicker payoff.

For federal student loan borrowers, the decision needs to be much more deliberate. This is where the next three questions come into play. The reason for the extra consideration is that if you refinance a federal student loan, you lose federal benefits like deferment, interest accrual forbearance, income-driven repayment and potential forgiveness.

General Forbearance

With general forbearance, sometimes called discretionary forbearance, your loan servicer will decide whether or not to grant your request for forbearance if you are unable to put money toward student loans and make your loan payments.

General forbearance is available for Direct Loans, Federal Family Education Loan (FFEL) Program loans and Perkins Loans for up to 12 months at a time. Borrowers still experiencing hardship when the forbearance period expires can reapply and request another general forbearance.

For now, unpaid interest is capitalized on Direct and FFEL loans but not on Perkins Loans, according to the Federal Student Aid office. As of July 2023, new regulations will eliminate all interest capitalization when a borrower exits forbearance.

Mandatory Forbearance

Your loan servicer is required to grant you forbearance if you meet certain criteria including:

  • You are serving in a medical or dental internship or residency program.

  • The total amount you owe each month for all federal student loans is 20% or more of your total monthly gross income.

  • You are serving in an AmeriCorps position for which you received a national service award.

  • You are performing a teaching service that would qualify you for teacher loan forgiveness.

  • You qualify for partial repayment of your loans under the Department of Defense Student Loan Repayment Program.

  • You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.

Direct and FFEL loans qualify for mandatory forbearance for any of the above reasons. Perkins Loans also qualify if a borrower has a heavy student loan debt burden.

Mandatory forbearance is to be granted for no more than 12 months but can be extended if you continue to meet eligibility requirements.

2. Do I work for the government or a nonprofit?

This is the first place to start when you’re talking about federal student loans. If you work or plan to work for a qualifying government or nonprofit employer, you should seriously consider Public Service Loan Forgiveness (PSLF). With PSLF, assuming you make 120 qualifying monthly payments (which the last three and a half years of paused payments count), your remaining balance will be forgiven tax-free. There are administrative hurdles, however. You should be deliberate when choosing your income-driven repayment option, but it is the first consideration for employees in this group.

3. Can I afford payments when they restart?

After three and a half years of not making payments, there is a very high chance that space in your budget has been filled by other things. Take a step back and think about whether you can make these federal loan payments. If you simply cannot afford payments and would have to make some serious cuts in your essential expenses, then your focus will likely be on reducing payments. This can be done in several ways. One option would be switching to an extended, graduated, or extended graduated repayment plan with your federal student loan.

Another option is exploring income driven repayment options, especially with the Department of Education’s new SAVE option. It is important to keep in mind that SAVE will be implemented in phases, with some improvements coming this year and the rest in 2024. Once implemented, this will become the most generous income-driven repayment option for an overwhelming majority of student borrowers.

The last option is refinancing to a longer term. This is typically reserved for people who have higher incomes or those that expect their incomes to grow, making SAVE not as beneficial.

With any of these examples, it is important to remember that when you focus on reducing payments, you usually end up paying more over the life of the loan.

4. What is my goal when it comes to student loans?

This may sound rhetorical, but sometimes people want to lower their payments and other times they want to reduce their interest rate and pay off their loans as quickly as possible. Assuming you do not qualify for PSLF and can afford your payments, the most common goals are reducing your rate or paying off the loan as quickly as possible. Refinancing can be a very powerful tool to accomplish both of these things.

It may be worth checking your rate to see how much lower your rate would be or how much more quickly you would pay off your loan. Remember that when you refinance to a private student loan, your new rate is based on your unique circumstances, such as your credit score. That’s different from federal loans, which have the same rates for everyone that takes out that type of loan at that time. Sometimes relying on your own circumstances is powerful, because you can enjoy the benefit of your income, free cash flow and credit score. If refinancing lowers your rate or helps you pay off your loan faster, then it is all about weighing those benefits against losing federal benefits.

Will forgiveness happen under President Biden’s alternative approach announced in June? I’m not sure, and quite frankly, no one knows, given the recent U.S. Supreme Court decision. Will you need forbearance, deferment or income-driven repayment in the future? These are tradeoffs you will need to think about as you evaluate the benefits you can get from refinancing.

Not certain what interest rate you would qualify for? SoFi can help with that — and fast. It takes just two minutes to get your rate without affecting your credit score. Additionally, what you see is what the loan will cost. We don’t believe in application or origination fees — or prepayment penalties for that matter.