By Sabrina Karl

Just like a mortgage, student loans can indeed be refinanced. But just because something can be done, doesn’t mean it’s always a good idea to do it.

President Biden’s recent announcement of pandemic-related student loan forgiveness highlights one of the pitfalls with refinancing, because benefits like this only ever apply to federal student loans.

Student loans can only be refinanced with private lenders; the federal government does not offer refinancing. That means refinancing will erase your eligibility for the benefits and options that come with federal loans. For instance, the federal program offers different repayment plans linked to your income, enabling payments to be capped for lower earners.

Federal loans also offer options for requesting deferment and forbearance in certain circumstances, and the government waits longer than private lenders to report your loan as delinquent or in default. Also notable is the loan forgiveness program for those who have made payments and worked in public service for at least 10 years.

Then come benefits that are hard to foresee, like two big ones triggered by the pandemic. First, the federal government suspended student loan payments and interest through the end of 2022. Second, they announced last week that up to $10,000 in loan balances will be forgiven. Both of these benefits are only available on federal student loans; they do not apply to private loans.

Of course, if it’s a private student loan you’re considering refinancing, there is little downside of moving from one private lender to another (assuming you’re getting a new, lower rate), as you will not be giving up federal benefits on that loan.

But for existing federal student loans, it’s critical that you carefully consider the benefits you know you’ll be giving up, as well as considering the possibility that new future benefits could be offered.