September 16, 2014, 12:01 AM ET

ByAnnaMaria Andriotis

Many Americans are weighted down with student loans years after graduation.Associated Press

Borrowers who want to lower the interest rate on their federal student loans have a new option.

Citizens Financial Group announced on Tuesday that it is accepting applications from both parent andstudent holders of federal loans to refinance into private loans at the Providence, R.I.-based bank. Someborrowers who have good credit scores could get a lower interest rate than what theyre currentlypaying.

Citizens fixed interest rates start as low as 4.74%, while variable-rate loans, whose rates can changeeach month, have rates as low as 2.31%. The lowest rates are given to borrowers with very high creditscores and long-term employment and who also have a Citizens checking account and set up automaticbill payments for their loan.

In contrast, parents who signed up for a federal Plus loan to help their kids pay for college would havereceived a fixed interest rate between 6.41% and 8.5% since the 2006-07 academic year. Before then,Plus loans carried variable rates. Undergraduate student borrowers of unsubsidized Stafford loansthemost commonly used federal loanspay fixed rates ranging from 3.86% to 6.8%.

Federal loan borrowers have historically had few options to lower their interest rate. The federal

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government allows borrowers to consolidate their federal loans into one loan. But there isnt much of achange in the interest rate. The new rate is roughly the weighted average of the rates on the separateloans.

In recent years, some private lenders have offered more relief. They say that borrowers who are severalyears out of college and have improved their credit scores should have the chance to refinance, muchlike mortgages borrowers can.

Discover Financial Services launched a pilot program in April that allows undergraduate and graduateborrowers to consolidate their federal and private loans into a new loan with a new interest rate. Theprogram is only open to borrowers who have a relationship with Discover and who are invited to apply.

Nonbank financial institutions Social Finance, commonly referred to as SoFi, and CommonBond beganrefinancing federal student loans in 2012. CommonBond is offering this service to borrowers who usedthe loans to pay for an M.B.A., graduate engineering degree, law degree or medical degree. SoFi says itoffers this option to all borrowers.

The move is the latest by Citizensa relatively new player in the student-loan marketto expand itspresence. The bank began refinancing private student loans in January 2014 and has priced its loansamong the lowest in the market. It began originating private student loans in 2009 when manylendershit by rising defaultswere exiting the market.

For many families with students now in college, private college loans are much cheaper than federalstudent loans nowa reversal from as recently as one year ago.

Citizens goal is to attract new clients, in particular young, college-educated borrowers who mayeventually get their mortgage, car loan and other financial products there, says Brendan Coughlin,president of auto and education finance at Citizens. The banks goal is to earn the trust of thesecustomers right out the gate and to turn them into lifelong customers, he says.

In most cases, borrowers will need at least a 660 FICO credit score, on a scale that runs from 300 to850, to get approved.

In converting federal student loans to private ones, borrowers will lose several repayment options. Thefederal government offers income-based repayment, for example, that allows borrowers to repay loanslargely based on their income rather than the amount of debt that they owe. It also allows for principalforgiveness in which the remaining loan balance can be waived after at least 10 years of payments. Thisrelief isnt available for private-student-loan borrowers who become unemployed or encounter anothertype of financial emergency.

To qualify for Citizens refi option, borrowers need at least $10,000 in federal student loan debt. They canrefinance a maximum of $90,000 debt that they took out to attain their undergraduate studies, up to$130,000 for their undergraduate and graduate years, and up to $170,000 for studies including, dental,medical and law school. Borrowers will be able to get repayment periods of 15 to 20 years.

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