By: Bob McFadden
President & CEO, Finger Lakes Federal Credit Union
Refinancing your federal and/or private student loans, including Parent and Graduate PLUS loans, can be an effective way to simplify your payments and potentially reduce the overall cost of borrowing. But refinancing isn’t the right solution for everyone. Everyone’s situation is unique, and it’s important to understand what you may gain and what you may give up before making a decision.
This guide breaks down the key factors to consider, the pros and cons, and the differences between federal consolidation and private refinancing so you can confidently decide what’s best for your financial future.
When to Consider Refinancing Your Student Loans
You may want to explore refinancing if:
- Your current loans have high interest rates.
Lowering your interest rate could reduce total interest paid overtime.
- You are managing multiple student loans (private and/or federal).
Combining several payments into a single monthly bill can make repayment simpler and more manageable.
- You have strong credit or a qualified co-signer.
Good credit may help you qualify for lower rates or improved repayment terms.
Pros of Student Loan Refinancing
- One loan, one payment
One loan with one simple payment means easier to manage monthly payments.
- Potential interest savings.
Depending on your credit profile and repayment term, you may qualify for a lower interest rate. Also allows you to take advantage of declining interest rate environments.
- Flexible repayment options.
You may choose a shorter term to pay off your loan faster or a longer term to reduce your monthly payment.
Cons of Student Loan Refinancing
- Loss of federal benefits. *
Refinancing federal loans with a private lender permanently removes access to federal student loan protections. - Possible increase in total interest paid.
Choosing a longer repayment term can lower monthly payments, but it may increase the overall cost of repayment. - Higher monthly payments with a shorter term.
Refinancing to pay off the loan faster may reduce total interest but increase monthly payments.
* By refinancing federal student loans, you will lose certain borrower benefits from your original loans. These may include interest rate discounts, principal rebates, income-based repayment, or some cancellation benefits that can significantly reduce the cost of repaying your loans.
Student Loan Refinancing FAQs
- What does it mean to refinance my loans?
Refinancing allows you to replace one or more existing loans with a brand-new private loan, ideally at a lower interest rate, or with better repayment terms. You’ll make one monthly payment to the new lender instead of multiple payments to different student loan services.
- Can I combine federal and private loans?
Yes—if you refinance with a private lender like Finger Lakes Federal Credit Union, you may combine federal and private loans into one new loan. This includes Parent PLUS loans, which may be refinanced by either the original parent borrower or the student.
However, if you use the federal government’s Direct Consolidation program, only federal loans can be combined. Private student loans are not eligible for federal consolidation.
- Why might I choose not to refinance my student loans?
Refinancing may not be the best option if:
- You want to keep access to federal benefits like income-driven repayment, deferment, forbearance, PSLF, or federal forgiveness programs.
- You qualify for federal payment relief or expect to use safety nets like unemployment deferment.
- A longer term would reduce your monthly payment but increase your total borrowing cost. This is an important trade-off to consider.
- Who can provide additional information?
Finger Lakes Federal Credit Union offers personalized guidance to help you understand whether refinancing fits your goals. You can connect with a student loan lending expert by email or schedule a free one-on-one phone consultation.
Ask an Expert
- What is the difference between federal “consolidation” and private loan “refinance”?
Federal Direct Consolidation Loan
A Direct Consolidation Loan allows you to consolidate multiple federal student loans into one. Key features include:
- Federal student loan consolidation does not reduce interest rates. The consolidated new fixed interest rate is based on the weighted average of your existing federal loans, rounded up to the nearest one-eighth of 1%.
- No cap on how high the consolidation interest rate may be.
- Available only for federal loans. Private loans cannot be included.
- PLUS loans made to parents cannot be transferred to the student borrower.
- Repayment terms may be extended up to 30 years depending on your loan balance.
- Offered exclusively through the federal government (learn more at StudentAid.gov).
Private Student Loan Refinance *
Refinancing with a private lender, such as Finger Lakes Federal Credit Union, allows you to:
- Combine both federal and private loans, including Parent and Graduate PLUS loans, into a single new loan.
- Choose between fixed or variable rates based on your creditworthiness and financial history.
- Potentially lower your interest rate, reduce your monthly payment, or shorten your repayment period.
- Keep in mind that by consolidating your federal student loans, you will lose certain borrower benefits from your original loans.
* Subject to credit approval and refinance loan limit. Credit approval includes verification of application information and receipt of payoff information.
Is Refinancing Right for You?
Refinancing can be an excellent strategy if you want to simplify your payments, lock in a potentially lower rate, or adjust your repayment schedule. But it’s important to weigh the trade-offs, especially the loss of federal benefits, before making your decision.
Use the resources below to help evaluate your options:
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About the author
Bob McFadden, President & CEO
Bob brings over 30 years of lending experience and is a passionate advocate for the financial well-being of Finger Lakes Federal Credit Union members. He oversees the development of lending programs while staying committed to helping members reach their financial goals. He was recently recognized in the Rochester Business Journal’s 2025 Power List for Banking & Finance.