Biden announced up to $20,000 in student loan forgiveness for certain federal borrowers.
But some student loan companies offer borrowers the option of refinancing into private loans.
It could prevent a borrower from getting federal relief, and the CFPB said it raises “serious concerns.”
While many might welcome President Joe Biden’s student loan forgiveness announcement, borrowers should be especially careful about how they manage their debt at this time.
Late August, Biden announcement up to $20,000 in debt forgiveness for Pell Grant recipients earning less than $125,000 a year, and up to $10,000 in relief for federal borrowers under the same income cap. It was a long-awaited announcement, given that Biden had pledged campaign relief, but it also caused confusion among millions of federal borrowers about eligibility requirements, how to apply and the timeline. of this relief.
Many student loan service sites where borrowers access their balances were unavailable for hours after Biden’s announcement. Major services like Nelnet and Navient have urged borrowers to stop calling with questions, since they knew nothing beyond what the Ministry of Education released publicly.
Adding to the confusion were emails loan companies following Biden’s announcement offering borrowers the option to refinance their federal student loans into private loans. Insider reviewed several emails sent to borrowers by Navient, breaking down the difference between federal and private student loans, and offering its refinance tool to borrowers who would offer lower interest rates.
A spokesperson for Navient pointed Insider to the fine print of the email, which explained that borrowers could risk losing federal benefits like Biden’s student loan forgiveness if they refinance. The spokesperson added that “for a number of years we have contacted potential borrowers about their options for refinancing at lower rates with NaviRefi”, its refinancing tool.
Yet in a consequential time for federal student loan borrowers, refinancing could cause borrowers to miss out on broad debt forgiveness — even if it offers them lower interest rates on their debt. Advisor to the Director of the Consumer Financial Protection Bureau (CFPB), Andrea Matthews, told Insider that “with debt relief of $10,000 to $20,000 on the table for the majority of federal student loan borrowers , the benefits of having a federal student loan have never been more tangible.”
“This raises serious concerns about whether student lenders fairly represent the trade-offs of refinancing a private loan,” she said.
The Education Department did not respond to Insider’s request for comment.
As the White House has made clear, all student loans held by the federal government are eligible for debt cancellation. This includes federal undergraduate loans, spousal loans, graduate loans, and PLUS loans for graduate students and parents – and Federal Family Education Program (FFEL) borrowers with loans that have been transferred at the Ministry of Education may also be eligible. Borrowers with private student loans will not be able to access this relief, however, so federal borrowers considering refinancing should keep this in mind.
Prior to Biden’s announcement, some loan companies were creating confusion by narrative borrowers, they had payments due in September despite the administration ordering any messaging surrounding a payment restart to be suspended. The companies themselves have even said that it could take time to take full account of any changes announced by Biden, borrowers should therefore be aware that the repair time could be longer than expected.
Read the original article at Business Intern