Why You Shouldn’t Refinance Federal Student Loans During COVID-19

It could mean coronavirus student loan relief and federal protections disappear

Student studying with textbook with other students working at desks behind her.

 GILKIS - Damon Hyland / Getty Images

Borrowers might be considering a refinance as a way to lower their loan costs. But doing so during the ongoing COVID-19 crisis might not be the right time, especially if you want to refinance federal student debt. Refinancing federal student loans during COVID-19 means waiving crucial borrower protections, including student loan relief provided by the CARES Act. 

Here’s why you should reconsider refinancing federal student loans during the coronavirus pandemic.

Key Takeaways

  • Refinancing your federal student loans involves transferring the debt to a private lender, and you may lose out on certain perks.
  • Under the CARES Act, federal loans are in a state of forbearance during the COVID-19 pandemic, with the potential for additional relief on the horizon.
  • Private loans are not subject to CARES relief, federal repayment options, or loan forgiveness programs.

Why You Shouldn’t Refinance

You take out a new student loan with a private lender when you refinance. The new loan pays off and replaces your existing student loans (federal or private). Refinancing student loans can be an attractive option to combine and simplify student debt, to adjust loan payments or terms, and to potentially secure a lower student loan rate. 

But private lenders don’t offer the same protections you get with federal student loans. They won't change repayment plans or pause payments. Refinancing will also mean losing out on student loan relief offered in response to the coronavirus pandemic.

Refinance Federal Student Loans, Lose CARES Act Relief

The CARES Act extends unprecedented student loan relief for federal student loan borrowers. Benefits to borrowers with federally owned student loans include administrative forbearance that automatically suspends payments. Forbearance was set to expire on Jan. 31, 2022, but it was extended multiple times, and as of April 6, 2022, is set to last until Aug. 31, 2022.

Forbearance applies to payment requirements for Public Service Loan Forgiveness, forgiveness offered through income-driven repayment plans, and student loan rehabilitation.

All interest charges are suspended through Aug. 31, 2022, as well. No accruing interest means that your student loan balance won’t increase, and you won’t pay for this pause in payments. It can be a chance to pay down your principal or any previously accrued interest if you do choose to continue making payments during this time.


The CARES Act relief was substantial enough that several private lenders, such as Citizens Bank and SoFi, advise borrowers who are considering refinancing to review these benefits when deciding whether to do so.

With no interest and no payments, borrowers save by leaving their federally owned student loans as they are until all applicable deadlines expire.

Other Long-Term Benefits You’d Be Giving Up

The CARES Act has provided key student loan relief, but it didn’t cover all federal student loans. Some, including Federal Family Education Loans (FFEL) and Perkins loans, are guaranteed by the U.S. Department of Education but they're owned by private lenders.

The Department of Education announced on March 30, 2021, that it would grant the same waivers for FFEL that have been afforded to other federal student loans. That means 0% interest due between March 13, 2020, through Aug. 31, 2022, and payments are paused until Aug. 31, 2022, as well.

Any payments that were made can be refunded upon request, and any wages or tax refunds that were garnished will be returned. The loans will be restored to current status. Credit bureaus will be notified to remove any delinquency reports from credit reports.

You can still benefit from other federal student loan protections if your student loans aren’t eligible for coronavirus relief, or if student loan relief runs out.

Refinancing a federal student loan means losing these protections, which you might want to take advantage of.

Forbearance and Deferment

Many private lenders offer forbearance options to pause payments, but it’s not guaranteed protection as it is with federal student loans. Student loan servicers are directed to grant forbearance or deferment to assist borrowers in certain situations.

Reasons for federal student loan deferment include job loss, financial hardship, a return to school, or active military service. A student loan forbearance is an option to borrowers and can be granted to ease financial hardship, job loss or income drop, medical expenses, and other situations.

Alternative Repayment Plans

A refinanced private student loan is locked into a set repayment schedule. The only way to change your monthly payments is to refinance yet again. But borrowers can request a different federal student loan repayment plan at any time. 

One option for struggling borrowers is an income-driven repayment plan, such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). All of these are designed to keep your monthly payments affordable, and they offer forgiveness of any remaining balances after 20 to 25 years.

Federal Student Loan Forgiveness

The last benefit to consider is federal student loan forgiveness. Federal programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness will cancel a portion of student debt if the borrower meets employment and other eligibility requirements. Student loans can also be canceled if the borrower dies or is permanently disabled, and in some cases of school misconduct or closure.


Only federal student loans qualify under these programs, so refinancing would mean losing the chance to claim this loan forgiveness.

More Federal Student Loan Relief Could Be Coming

During his campaign, President Joe Biden proposed suspending student loan payments and interest for anyone with income under $25,000. He also has proposed student loan forgiveness after 20 years of repayment, as well as more immediate loan cancellations through the Public Service Loan Forgiveness Program. 

White House Press Secretary Jen Psaki stated in December 2021 that Biden would sign a bill to forgive or cancel $10,000 in student loan debt if Congress passes one. But researchers are suggesting that a shift to an income-based repayment system would provide more relief for lower- and middle-income students and the government's bottom line as well.

The Bottom Line

No one can predict exactly what will happen with federal student loan policy in the coming years. But federal student loans already offer robust protections and options to borrowers no matter what happens in the realm of student loan policy.

It may be worth passing on student loan refinancing in favor of access to federal student loan options in uncertain financial times like these, such as forbearance, deferment, or income-driven repayment.

Frequently Asked Questions

What do I need to do to receive a forbearance under the CARES act?

If you have federal student loans there is nothing you need to do. Forbearance is automatic.

Should I refinance my federal student loans if I can get a really low interest rate?

Though it may be enticing to lock in a low interest rate while you can, keep in mind that until federal student loan repayments start back up again, your debt is not earning interest. It would be wiser to evaluate your repayment plan options at the end of the forbearance period.

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