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- Only loans held by the federal government are eligible for Biden’s student loan forgiveness.
- If you refinance your student loans with a private lender, those loans are no longer eligible.
- You may benefit from a lower interest rate by refinancing, but you will lack forgiveness.
Refinancing your federal student loans is one option that can lower your interest rate, but in most cases, it’s not the best choice.
On the one hand, you will lose many protections offered by the federal government. Sonia Lewis, a student loan expert who has helped over 20,000 clients manage their federal student loans, says refinancing your student loans will make you ineligible for protections such as:
- future payment pauses, such as the pandemic payment pause
- access to income-driven repayment plans, which can lower your monthly payments based on your income
- access to occupation-based rebate programs, such as the Civil Service Loan Rebate
On top of that, you’ll lose access to the student loan forgiveness President Biden announced on August 24: $10,000 in federal student loans per borrower, $20,000 if you received a Pell Grant.
To qualify for Biden’s discount plan, you must meet income requirements of $125,000 or less for individuals and $250,000 or less for married couples filing taxes jointly — and you to have to have loans held by the federal government.
You must have the right type of federal student loan to be eligible
Generally, only loans held by the federal government are eligible for Biden’s forgiveness plan. Here are the types of federal loans eligible for student loan relief:
- Undergraduate and graduate direct loans
- Parent PLUS Loans
- Direct PLUS Loans for Graduate and Professional Students
- Consolidation loans (with underlying loans disbursed no later than June 30, 2022)
- FFEL loans held by National Education
- Perkins loans held by the Department of Education
- Delinquent loans (including subsidized Stafford loans held by the Department of Education or commercially serviced, unsubsidized Stafford loans, Parent PLUS and graduate PLUS loans, and Perkins loans held by the Department of Education)
Another way to check if your loans are held by the US government is to check with your student loan officer. Here is a complete list of federal student loan services:
- FedLoan Service (PHEAA)
- Great Lakes Education Loan Services, Inc.
- OSLA interview
- Default resolution group
If your loans are managed by managers not listed above, they are private. If you refinance your student loans with a private lender, your loans will no longer be held by the federal government and, therefore, will become ineligible for forgiveness.
What will I lose if I refinance my student loans?
If you refinance your student loans, you won’t be eligible for Biden’s forgiveness plan up to $20,000. You will also lose the following protections:
- the ability to choose an income-based repayment plan with a lower monthly payment if you are experiencing financial hardship
- payment pauses, such as the pandemic payment pause
- loan release if you die before you can repay your student loans; your next of kin will inherit any private loan balance you may have
- access to future rounds of student loan forgiveness, if applicable, and beneficial changes to repayment programs
What are the benefits of refinancing my federal student loans?
The main reason a borrower might refinance their federal loans with a private lender is for a lower interest rate (although private lenders don’t always offer lower rates).
Now that the pandemic pause is ending, Lewis predicts that companies will start offering sign-up bonuses to attract federal borrowers who reduce your loan principal balance, as well as competitive interest rates based on your credit score. credit.
Generally, a lower principal balance and lower interest rates can help you pay off your student loans faster, but not necessarily (for example, if Biden’s forgiveness plan wipes out most or all of your debt ).
Lewis says, “I wish I could wear a sign on my forehead that says, ‘Don’t quit your lender! refinancing with a private lender.
What are my student loan cancellation options if I have already refinanced?
Unfortunately, loans that have already been refinanced with a private lender are no longer eligible for student loan forgiveness.