What You Need to Know About Refinancing Student Loans After Forbearance
Refinancing after forbearance is a common strategy to regain control of student debt once you can resume payments. In plain terms: you apply for a new loan that pays off your existing loans and gives you a new interest rate, term, and servicer. That can lower your monthly payment, shorten your payoff timeline, or both. However, refinancing—especially moving federal loans into a private loan—has trade-offs that can be costly if you lose access to federal benefits.
In my practice helping borrowers for over 15 years, I’ve seen the best results when refinancing follows a deliberate review of affordability, loan type, and long-term goals. Below I outline what matters most and specific steps to take.
How refinancing after forbearance typically works
- Confirm the status of your loans. Forbearance pauses payments but often allows interest to accrue (depending on the loan). Check your servicer’s account summary and the U.S. Department of Education’s borrower portal for federal loans (studentaid.gov) (U.S. Department of Education).
- Re-establish steady income and verify your credit. Lenders evaluate income, debt-to-income ratio, and credit history. An improved credit profile since you originally borrowed can unlock lower rates.
- Shop lenders and compare total cost. Look at APRs, fixed vs. variable rates, fees, and whether the new term increases total interest even if monthly payments fall.
- Apply and close. If approved, the new lender pays off the old loan(s) and you begin payments under the new contract.
Authoritative resources: U.S. Department of Education (studentaid.gov) and Consumer Financial Protection Bureau (consumerfinance.gov) provide borrower checklists and repayment facts (U.S. Department of Education; CFPB).
Key advantages
- Lower interest rate: If your credit has improved or market rates are lower than your original loan, refinancing can materially cut interest costs.
- Simplified payments: Combine multiple loans into one monthly payment with a single servicer.
- Flexible term choice: You can shorten the term to pay less interest or lengthen it to lower monthly payments (but lengthening increases total interest).
- Potentially better customer service: Some private lenders offer online tools and streamlined servicing that borrowers prefer.
Major downsides and risks
- Loss of federal protections: Refinancing federal loans into private loans eliminates access to federal repayment plans (e.g., income-driven repayment), deferment and forbearance options, and federal forgiveness programs such as Public Service Loan Forgiveness (PSLF). If you are on an income-driven plan or pursuing forgiveness, refinancing typically is not recommended (U.S. Department of Education).
- Interest capitalization from forbearance: Interest accrued during forbearance often capitalizes (is added to principal) when repayment resumes. If that happened to your loans, your new principal may be higher and refinancing cost calculations should use that updated balance.
- Variable-rate risk: Some lenders offer low variable rates now; if rates rise, your payment could increase.
Timing: When to refinance after forbearance
- Wait until you have steady income and a stable credit profile. Lenders want to see reliable ability to repay.
- If you need immediate relief, consider alternatives first—such as enrolling (or reenrolling) in an income-driven repayment (IDR) plan for federal loans, applying for loan consolidation (if eligible), or contacting your servicer about hardship options (U.S. Department of Education; CFPB).
- Refinance after you calculate the true cost-benefit. Compare your current loan’s remaining balance and interest (including capitalized interest), projected payments under current plans, and the new loan’s APR and term. Use multiple scenarios and a refinance calculator.
Who should consider refinancing after forbearance
- Borrowers with only private loans, or federal borrowers who do not need federal protections and have improved credit.
- Those who can get a materially lower rate or who prefer predictable private-lender terms.
- Borrowers who don’t qualify for (or don’t want) federal income-driven repayment or forgiveness programs.
Who should not refinance:
- Borrowers on track for PSLF, or who require IDR protections and flexible forbearance options.
- Borrowers who anticipate income volatility where federal options would be safer.
Steps to refinance safely (practical checklist)
- Verify exact loan balances and whether interest capitalized during forbearance. Get recent statements from each servicer.
- Check your credit report and credit score. Fix errors, reduce high credit-card balances, and avoid new large debts before applying.
- Gather proof of income, employer verification, and tax returns if lenders require them.
- Get prequalified offers from several lenders to compare APR and terms without hard inquiries where possible.
- Compare total costs not just monthly payments—calculate total interest over the loan term and time-to-break-even.
- Read contract details for prepayment penalties, autopay discounts, and co-signer release options if relevant.
- Consider a co-signer only if necessary and plan for the co-signer removal timeline.
- Close the loan and confirm the new lender will pay off old servicers. Keep proof that payoffs completed and that federal loans are listed as paid on studentaid.gov.
Tax and financial planning considerations
- Interest paid on student loans may be tax-deductible up to annual limits for qualifying taxpayers; consult IRS Publication 970 and a tax professional to confirm eligibility for any given year (IRS Publication 970).
- Avoid refinancing into a much longer term purely to lower monthly payments unless you understand the long-term cost. Lower monthly payments can be helpful short-term but may increase total interest.
Real examples (anonymized client outcomes)
- Case A: A client left forbearance after a job change. Her credit score rose from 640 to 760. By refinancing private loans, she dropped the interest rate from 7% to 4.2% and shortened the term to 10 years. Result: lower total interest and faster payoff.
- Case B: A public employee in forbearance was near PSLF qualification. They considered refinancing but, after reviewing records, kept federal loans to preserve PSLF counts and instead used an income-driven plan to manage payments.
These cases illustrate the importance of personal goals: rate savings vs. preserving federal benefits.
Frequently asked questions
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Can I refinance federal loans during forbearance? Yes—private lenders will refinance federal loans while in forbearance in many cases, but doing so converts federal loans to private debt immediately. That should be done only after weighing lost federal benefits (U.S. Department of Education).
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Will refinancing lower my monthly payment automatically? Not always. Lowering the monthly payment often requires extending the term or reducing the interest rate. Check total-interest tradeoffs before deciding.
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Does forbearance hurt my ability to refinance? Not directly, but lenders look at recent payment history and overall creditworthiness. A forbearance episode may make approval harder if you also have weak income or low credit scores.
Alternatives to refinancing
- Federal consolidation (for federal loans) to simplify payments without losing federal protections may help some borrowers—though consolidation can change repayment timelines.
- Income-driven repayment plans for federal loans often reduce monthly payments based on income.
- Temporary hardship plans and lender-negotiated modifications for private loans can give breathing room without refinancing.
Explore related guidance on our site: see our primer on Refinancing Student Loans: Benefits, Pitfalls, and Next Steps and our comparison of Student Loan Consolidation vs Refinancing: Which Is Right for You. For how interest accrues during paused payments, read Understanding Interest Accrual During Forbearance Periods.
Final advice and disclaimer
Before refinancing after forbearance, I recommend running at least three scenarios: keep current loans and enroll in applicable federal plans; refinance to a shorter term; and refinance to a longer term for cash-flow relief. Compare total interest, monthly cash flow, and protection trade-offs. If you’re pursuing forgiveness programs such as PSLF, avoid refinancing federal loans. Work with a trusted lender or a financial planner to make the numbers clear.
This article is educational and not individualized financial advice. Check the U.S. Department of Education and the Consumer Financial Protection Bureau for federal rules and borrower protections (U.S. Department of Education; CFPB). For tax-specific concerns, consult IRS Publication 970 or a tax professional.
Authoritative sources and further reading:
- U.S. Department of Education — studentaid.gov (loan balances, repayment plans, consolidation, PSLF)
- Consumer Financial Protection Bureau — consumerfinance.gov (student loan borrower tools and guides)
- Internal Revenue Service — Publication 970 (tax benefits of education)
