Loan Refinancing vs. Income-Driven Repayment
Borrowers looking to manage student loan repayment can consider refinancing into a new loan with different terms, or — for eligible federal loans — enrolling in an income-driven repayment plan that adjusts payments based on income.
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Loan Refinancing
Replacing one or more existing loans with a new private loan, ideally at a lower interest rate or more favorable term, based on current creditworthiness.
- Can lower the interest rate and total repayment cost for borrowers with strong credit
- Can simplify repayment by combining multiple loans into one
- Term length can be adjusted to fit a borrower's current budget
- Refinancing federal loans into a private loan forfeits federal borrower protections and forgiveness eligibility
- Approval and best rates depend on strong credit or a qualified cosigner
- Not reversible — you generally can't convert a refinanced private loan back to federal status
Income-Driven Repayment
A federal repayment plan that sets the monthly payment as a percentage of discretionary income rather than a fixed amount, potentially with loan forgiveness after a set number of years of qualifying payments.
- Payments adjust with income, which can ease financial strain during lower-earning periods
- May lead to loan forgiveness after a set number of years of qualifying payments
- Preserves federal borrower protections since the loan remains federal
- Total interest paid over time can be higher than a standard repayment plan
- Only available for eligible federal loans, not private loans
- Requires annual income recertification to stay on the plan
Which one makes sense for you?
Refinancing can lower costs for borrowers with strong credit and no need for federal protections, but it permanently forfeits those protections for any federal loans included. Income-driven repayment keeps federal loans federal and adjusts payments to income, which can be valuable if forgiveness eligibility or income variability matters to you.
Key cost factors.
- Whether your loans are federal, private, or a mix
- Your current and expected future income stability
- Whether you might benefit from a federal forgiveness program tied to income-driven repayment
- Your credit profile if refinancing is being considered
Before you decide.
- Would refinancing federal loans into a private loan cause me to lose eligibility for a forgiveness program I'm counting on?
- What would my estimated monthly payment be under an income-driven plan based on my current income?
- What interest rate could I realistically qualify for if refinancing, given my current credit profile?
Frequently asked questions.
Can I switch back to a standard repayment plan after enrolling in income-driven repayment?
Generally yes, federal loan borrowers can typically switch repayment plans, though it's worth checking current program rules, since switching can affect progress toward any forgiveness timeline.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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