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

It could mean your student loan relief and federal protections disappear

Student studying with textbook with other students working at desks behind her.
Sallie Mae student loan rates are competitive and it offers financing to students with less than half-time coursework. Photo:

 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 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 has been extended multiple times, and was extended again on Nov. 22, 2022, with the exact end date yet to be determined.

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


On Tuesday, Nov. 22, 2022, the Biden administration extended the pause on payments and interest on federal student loans for the eighth time. Borrowers with federal student loans won’t have to make payments, and loans won’t resume accumulating interest, until 60 days after court cases challenging Biden’s student loan forgiveness program are resolved or the Department of Education is allowed to move forward with the program. If the cases aren’t resolved by June 30, 2023, payments will resume two months after that.

All interest charges are suspended 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.

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


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.

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 is due between March 13, 2020, through Dec. 31, 2022, and payments are paused until Dec. 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 their 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.


On Aug. 24, 2022, President Joe Biden’s administration proposed a new plan for federal student loan repayment for undergraduate loans. The plan would cap monthly payments at 5% of your monthly income. After 10 years, whatever remaining balance you have would be eliminated if the original loan balance was $12,000 or less.

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.

Biden Implemented More Federal Student Loan Relief

During his campaign, President Joe Biden proposed several plans to help borrowers with student loan debt. In August 2022, some of it came true.

On Aug. 24, 2022, Biden announced the cancellation of $10,000 of federal student loan debt for eligible borrowers, and $20,000 for federal Pell Grant recipients.

Biden also proposed a new plan for IDR plans. The plan would cap monthly payments at 5% of your monthly income. After 10 years, whatever remaining balance you have would be eliminated if the original loan balance was $12,000 or less.

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 (FAQs)

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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  2. The White House. "Statement by President Joe Biden Extending the Pause on Student Loan Repayment an Additional 90 Days."

  3. Department of Education. “Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation To Smooth Transition to Repayment.”

  4. Citizens. "The CARES Act and Your Student Loan Payments."

  5. SoFi. "CARES Act Student Loan Relief Extended Again Through January 31, 2022."

  6. Federal Student Aid. "COVID-19 Emergency Relief and Federal Student Aid."

  7. U.S. Department of Education. "Department of Education Announces Expansion of COVID-19 Emergency Flexibilities to Additional Federal Student Loans in Default." 

  8. Federal Student Aid. "Who’s My Student Loan Servicer?"

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  10. Federal Student Aid. "If Your Student Loan Payments Are High Compared to Your Income, You May Wish To Repay Your Loans Under an Income-Driven Repayment Plan."

  11. Department of Education. “Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation To Smooth Transition to Repayment.”

  12. Federal Student Aid. "Student Loan Forgiveness."

  13. Twitter. “@POTUS, Aug. 24, 2022 at 11:32 a.m.

  14. Federal Student Aid. "COVID-19 Loan Payment Pause and 0% Interest."

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