There’s a lot going on right now with student loans, from relief offered due to the COVID-19 pandemic and discussions about potential student loan forgiveness, to extremely low interest rates which make student loan refinance seem appealing. You may be wondering how any of this affects you, and what you should do with your student loans. The answer isn’t simple, it will require you to look at your financial situation and make a decision on what makes the most sense for you. Here are a few things you should consider.
Learn more about the current Biden student loan forgiveness and repayment relief.
Types of Student Loans
Determining the type of student loan(s) you have is extremely important, and if you have federal loans you need to further break that down. You should also have an idea of how much student loan debt you have—it may be helpful to break down your debt by loan type.
The types of student loans you could have include:
- Federal loans under the FFEL program (generally not owned by the U.S. Department of Education, but some may be)
- Federal loans under the Direct Loan program (owned by the U.S. Department of Education)
- Federal loans under the Perkins program (generally not owned by the U.S. Department of Education, but some may be)
- Private student loans through a private lender
The student loan relief offered due to the COVID-19 pandemic has been limited to student loans owned by the U.S. Department of Education (ED-owned Loans). Federal student loans which are not ED-owned (FFELP loans) and private student loans haven’t been offered the same type of administrative forbearance and 0% interest. While your lender may allow you to postpone your payments, you are likely still accruing interest on your loans.
Student loan forgiveness discussions under Biden
Once you determine the types of loans you have, it’s time to consider if refinance makes sense based on current discussions about student loan forgiveness in the Biden administration. It’s extremely important to note that these discussions about student loan forgiveness are still discussions, nothing has been approved. There are a few key areas of the conversation which are extremely important. The first is the forgiveness amount. We have heard that President Biden has been supporting $10k in forgiveness while many student loan advocates and congressional members have been pushing for $50k.
The second area of discussion is which types of student loans would be eligible. Would forgiveness be offered to all federal student loans or just ED-owned loans, and will private student loans be eligible? The discussion regarding federal student loans is still ongoing, but there are many who believe that private student loan forgiveness is highly unlikely.
And finally, there is the issue of eligibility qualifications for student loan forgiveness. Could there be income cutoffs or will forgiveness be offered to all student loan borrowers. Again, there is much speculation at this point, but there have been discussions about using a household income cutoff of $125,000 per year, and then potentially prorated forgiveness for those who make more. What we don’t know is any of the actual details. How the income threshold is determined could be on an individual borrower basis, or household income.
Should I refinance my private student loans during the pandemic?
Interest rates are currently very low, starting at 4.47% APR. Private student loans aren’t eligible for relief under the CARES Act, so it is worth it to consider private student loan refinance to help you repay your loans with a potentially lower interest rate. If you have stable employment, now may be a good time to refinance your private student loans and cash in on potential savings.
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Should I refinance my federal student loans during the pandemic?
Determining if you should refinance your federal student loans during the pandemic will depend on the type of federal student loans you have, ED-owned Loans or Federal Student Loans not ED-owned.
ED-owned Loans
If you have federal student loans which are held by the U.S. Department of Education, you may want to take some time to determine what actions you should take. As part of the CARES Act, loan payments were suspended, and student loans were granted a temporary 0% interest rate. These relief measures are set to expire on Dec. 31, 2022.
You have some time to determine your plan. However, during this time it would not be wise to refinance your federal student loans as you will not get an interest rate of 0% from a private lender.
Federal Student Loans not ED-owned (Some FFELP and Perkins Loans)
Your loans are not receiving any current benefits under the CARES Act. However, there is a chance your loans could be considered for forgiveness under the Biden administration. But we don’t know what, if, and when that will happen.
The best thing you can do is to keep your account in good standing. While you may want to give it a little more time to understand where student loan forgiveness is going, you want to come up with a strategy and method to make your decision on how to proceed with your student loan repayment.
You could consolidate your loans with a Direct Consolidation Loan. You will then be able to take advantage of the same benefits offered to ED-owned Loans. That would also help you buy some time to decide how you want to proceed.