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Student Loan Refinance Strategy as the Federal Interest Freeze Winds Down

Refinancing before the federal interest rate freeze ends is risky. However, it is possible to lock in a low interest rate without missing out on any possible extensions.

Written By: Michael P. Lux, Esq.


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For about two years, the federal government hasn’t charged a penny of interest on federally-held student loans.

It is hard to beat a 0% interest rate.

For this reason, I’ve advised borrowers not to refinance their federal loans during the rate freeze. However, I’ve heard from several borrowers considering a refinance before the interest rate freeze ends. They want to lock in a low interest rate now because they fear the refinance rates will go up once the freeze ends.

While there is some merit to this approach, it is not the strategy I would use.

The Concern About Waiting to Refinance

Most of the emails I’ve received reference one of two concerns.

First, borrowers are worried about inflation. They fear interest rates will go up, and they want to lock in a fixed-rate loan now.

Second, some are concerned that rates will increase as more borrowers refinance. Part of the reason today’s interest rates are so low is that lenders are fighting hard for the small group of borrowers that currently benefit from refinancing.

Both of these fears are legitimate. Inflation can impact student loan interest rates, and lenders often raise rates when funds become limited.

However, I don’t think the answer is to refinance right away.

The Danger of Refinancing Before the Freeze Ends

As we have seen multiple times, the scheduled end of the interest freeze may not be the actual end of the interest rate freeze.

When President Biden extended the interest rate freeze until January 31st, 2022, he said it was the final extension. The emergence of a new Covid variant meant that Biden had to extend the freeze even longer, most recently until May of 2022. During the latest extension, Biden and the Department of Education avoided terming the extension as final.

The possibility of another extension exists. You risk missing out on many months of 0% interest if you jump the gun.

The Risk of Forgiveness: Another danger to refinancing is missing out on some form of loan cancellation or student loan forgiveness for all.

I think forgiveness is unlikely. However, it is a concern that borrowers should weigh when thinking about the risks of student loan refinancing.

The Best Way to Refinance as the Interest Freeze Ends

If I wanted to refinance my federal loans but didn’t want to miss out on zero percent interest, I’d take advantage of the refinance timeline.

In other words, as the freeze was coming to an end, I’d get an offer from a refinance lender. However, I wouldn’t accept the offer until the freeze actually ended.

Refinance lenders give borrowers at least 30 days to sign their refinance agreement. Some lenders provide even more time. For example, Earnest gives borrowers 45 days. At the long end of the spectrum, Laurel Road and Sofi both offer borrowers 60 days to sign their agreement.

I’d set things up so that I had an offer in hand when the interest freeze ends. The day the federal government starts charging interest is when I sign the agreement.

Timing the End of the Federal Interest Rate Freeze

The federal interest rate freeze is scheduled to end on May 1st, 2022.

Borrowers using the timed refinance strategy should start checking rates with lenders in early to mid-April. I’d continue with the process up until the point that I have to sign the final loan contract to accept the loan.

If May 1st arrives and the government starts charging interest, sign the loan. If an extension comes at the last minute, don’t sign the contract.

This approach reduces the chances that rates spike because of borrower interest and helps ensure that you maximize the 0% interest rate.

The downside is that inflation and other economic factors could drive interest rates up in the coming months. However, sticking with the certainty of 0% is probably better than the possibility of rate increases.

Refinance Options

When the time does come to refinance, the following lenders offer the best fixed-rate loans as of November 2023:

RankLenderLowest RateSherpa Review
1Splash Financial4.96%*Splash Financial Review
2Earnest5.19%Earnest Review
3SoFi5.24%SoFi Review

For the borrowers looking for a low payment and a fixed rate, the following lenders currently offer the best 20-year fixed-rate loans:

RankLenderLowest RateSherpa Review
1Splash Financial6.08%*Splash Financial Review
2SoFi6.24%SoFi Review
3ELFI6.64%ELFI Review
About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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