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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 receive a lower interest rate by refinancing, but you’ll miss out on forgiveness.
Refinancing your federal student loans is an option that can reduce your interest rate, but in most cases it’s not the best choice.
For one thing, you’ll lose many protections offered by the federal government. Sonia Lewis, a student loan expert who has helped over 20,000 clients navigate their federal student loans, says refinancing your student loans will make you ineligible for protections like:
future payment pauses, like the pandemic payment pauseaccess to income-driven repayment plans, which can lower your monthly payments based on your incomeaccess to profession-based forgiveness programs, like Public Service Loan Forgiveness
On top of that, you’ll lose access to the student-loan forgiveness that 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 forgiveness plan, you must meet the income requirements of $125,000 or less for individuals, and $250,000 or less for married couples who file their taxes jointly — and you must have loans owned by the federal government.
You must have the correct federal student loan type to be eligible
Generally, only loans held by the federal government are eligible for Biden’s forgiveness plan. Here are the federal loan types eligible for student-loan forgiveness:
Undergraduate and graduate Direct loansParent PLUS loansDirect PLUS loans given to graduate and professional studentsConsolidation loans (with underlying loans disbursed on or before June 30, 2022)FFEL loans held by the Department of EducationPerkins loans held by the Department of EducationDefaulted loans (including Department of Education-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, 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 your student loan servicer. Here’s a complete list of federal student loan servicers:
FedLoan Servicing (PHEAA)Great Lakes Education Loan Services, Inc.EdfinancialMOHELAAidvantageNelnetOSLA ServicingESCIDefault Resolution Group
If your loans are managed by servicers not listed above, they are privately held. 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 of up to $20,000. You’ll also lose the following protections:
the ability to choose an income-driven repayment plan with a lower monthly payment if you fall into financial hardshippayment pauses, such as the pandemic payment pauseloan discharge if you die before you can pay off your student loans; your next of kin will inherit any private loan balances you may haveaccess to future rounds of student-loan forgiveness, if any, and beneficial changes to repayment programs
What are the pros of refinancing my federal student loans?
The main reason a borrower might refinance their federal loans with a private lender is a lower interest rate (though private lenders don’t always offer lower rates).
Now that the pandemic pause is ending, Lewis predicts that companies will begin offering sign-up bonuses to lure federal borrowers that lower the principal balance of your loans, as well as competitive interest rates based on your credit score.
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, ‘Do not leave your loan lender!'” The long-term benefits of student-loan forgiveness and income-driven repayment plans outweigh the short-term benefits of refinancing with a private lender.
What are my student-loan forgiveness options if I already refinanced?
Unfortunately, loans that have already been refinanced with a private lender are no longer eligible for student-loan forgiveness.