What do you give up when a private lender refinances your federal student loans?
Summary
Every federal protection attached to the balance you refinance: forgiveness programs, income-driven repayment, deferment and forbearance, and discharges for a closed school, school misconduct, disability or death. The CFPB adds two that people rarely think of: the 6% interest cap for active-duty servicemembers, and the interest deduction when student loans get refinanced together with other kinds of debt. The move is one-way, since a private loan cannot be turned back into a federal one.
The list
| Federal feature | What it does | After a private refinance |
|---|---|---|
| Public Service Loan Forgiveness | Forgives the rest of your Direct Loans after 120 qualifying payments while working full time for a government or qualifying nonprofit employer | Gone. Private loans are not eligible |
| Teacher and medical professional options | Forgiveness routes StudentAid.gov lists for teachers, nurses, doctors and other medical professionals | Gone |
| Income-driven plans, including RAP | Tie the payment to income and forgive what remains at the end | Gone |
| Deferment and forbearance | Pause payments for defined reasons | Replaced by whatever the lender offers |
| Closed school, borrower defense | Wipe out loans when the school closed or misled you | Gone |
| Disability (TPD) and death | Discharge the loan | Gone unless the lender's contract says otherwise |
The CFPB's summary of the trade: consolidating with a private lender means losing your rights under the federal program, including deferment, forbearance, cancellation and affordable repayment options, and possibly the protection of discharge on death or permanent disability.
PSLF, in numbers
PSLF needs 120 qualifying monthly payments, which do not have to be consecutive, so it takes at least 10 years. Say you work at a public hospital and have 84 of them. If you refinance privately, the 84 do not transfer anywhere. The program covers Direct Loans only, and StudentAid.gov lists student loans from private lenders as ineligible.
Direct Consolidation is different. Under the rule for consolidations since September 1, 2024, your counts are averaged across the loans you combine and carried over. The article comparing consolidation and refinancing works through that.
Three items people miss
- Fixed can become variable. The CFPB warns that moving from a federal loan to a private variable-rate loan can push your rate above the fixed rate you started with.
- Active duty. Refinancing can cost you the 6% interest rate cap under the Servicemembers Civil Relief Act.
- Taxes. If you fold student loans and non-student debt into one refinance loan, the CFPB says that loan may stop qualifying for the student loan interest deduction. A refinance of student loans alone is a different case, covered in the tax article.
If the goal is a smaller payment
StudentAid.gov's advice to borrowers who want a lower payment without consolidating: switch to an income-driven plan for longer-term relief, and use deferment or forbearance for short-term relief. The repayment plan article explains what is available after July 1, 2026 and how RAP sets the payment. A private offer with a lower rate is being compared against those options, and against the forgiveness programs above, not against your current bill alone.
Sources
- Federal Student Aid, studentaid.gov/manage-loans/forgiveness-cancellation
- Federal Student Aid, studentaid.gov/manage-loans/forgiveness-cancellation/public-service
- Federal Student Aid, studentaid.gov/manage-loans/consolidation
- Federal Student Aid, studentaid.gov/articles/financial-aid-dictionary
- CFPB, consumerfinance.gov/ask-cfpb/should-i-consolidate-refinance-student-loans-en-561
Written by Kaz (pen name). Figures are copied from the sources' published pages on the dates shown. We have not used these products. Corrections: contact form.