Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
This summer, President Joe Biden announced that individuals who earn $125,000 or less per year will be eligible for $10,000 in federal student loan cancellation. A big caveat: You cannot benefit from forgiveness from the federal government if you’ve refinanced your entire federal student loan amount.
We’ll go over the details of who qualifies for the new, one-time student loan forgiveness plan, how refinancing affects eligibility for federal benefits, and reasons why some individuals may want to refinance anyway.
How Federal Student Loan Forgiveness Works
Student loan forgiveness means that you are no longer required to pay back all or a portion of your federal student loans. Federal student loans are student loans that come directly from the federal government. President Biden’s proposed forgiveness will be available only to people paying down federal loans, not private loans.
The plan includes important updates to the federal student loan system:
• Individuals who earn less than $125,000 per year ($250,000 for married couples) will be eligible for $10,000 in student loan cancellation.
• Pell Grant recipients can receive up to $20,000 in debt cancellation.
• The pause on federal student loan payments has been extended through Dec. 31, 2022.
• Borrowers with undergraduate loans on income-driven repayment plans could cap their payments at 5% of their monthly expenses, down from 10%.
• Loan balances would be forgiven after 10 years of payments, down from 20 years, for loan balances of $12,000 or less.
Further details will be released in the weeks ahead. For a deep dive into the announcement, including reactions from the plan’s supporters and critics, read Student Debt Relief: Biden Cancels Up to $20K for Qualifying Borrowers.
How Refinancing Affects Forgiveness
When you refinance a student loan, a new, private lender pays off your old loan (or multiple loans) and replaces it with a new loan. A private lender may replace either a federal loan(s) or another private loan. Both federal loans and private loans are converted to a new private loan — you cannot refinance to another federal student loan.
It’s important to understand that the portion of a federal student loan that is refinanced (meaning you don’t have to refinance the entire amount) would lose federal loan benefits. Those benefits include:
• Eligibility for federal student loan forgiveness.
• Income-based repayment plans: payment plans intended to be affordable based on your income and family size.
• Deferment: a temporary pause in student loan payments where no interest accrues on your loans.
• Forbearance: also a temporary pause, but one during which interest may accrue on your loans.
See below for details on each of these benefits.
How Student Loan Refinancing Works
Borrowers refinance student loans for several reasons, including:
• Lowering your interest rate: Lowering your interest rate means you’ll pay less in interest over time, which can save you money in the long run.
• Changing to a fixed or variable rate: A fixed interest rate is a rate that doesn’t change throughout the loan term. On the other hand, a variable interest rate will change depending on the underlying interest rate benchmark. Refinancing can give you the option to choose between either a fixed or variable rate.
• Lowering your monthly payment: If you prefer to pay a little less on your loan payments per month, you may want to consider lowering your monthly payment. In this case, your lender will extend your repayment period. This means that it will take you longer to repay your loan — and note that you’ll pay more in interest over time.
• Shortening your repayment period: If you choose to shorten your repayment period, your monthly payment will go up. However, you’ll save money in interest over the life of the loan.
To refinance, you can shop around with different lenders to check their interest rates and terms. You’ll need to supply private lenders with your name, address, degree type, student loan debt totals, income amounts, housing costs, and more. The information you’ll need to supply generally depends on individual lenders. After that, the lender will run a soft credit check. Lenders should then present you with several offers, including various terms and interest rates (both fixed and variable rates).
Before you decide on the right private lender for you, check on origination fees (the upfront charge to process an application), any prepayment penalties if you were to pay off the loan early, customer service capabilities, and the overall costs to you.
Next, you’ll offer further information to your lender, including proof of citizenship, a valid ID, and pay stubs and/or tax returns. The lender will likely then run a hard credit check, and you’ll go through a final approval process.
Check out our guide to student loan refinancing for a complete overview of how to refinance a student loan.
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Protections for Federal Student Loans
When you trade federal student loans for a refinance, you give up certain federal student loan benefits, including guaranteed postponement and income-driven repayment options.
As mentioned earlier, postponement options include deferment and forbearance. In both cases, you can contact your loan servicer for information and instructions on how to defer your loans. In most cases, you’ll have to fill out a form.
Here are some details about both deferment and forbearance to understand what you’d be giving up by refinancing:
• Deferment: As mentioned earlier, deferment means you access a temporary pause in student loan payments during which no interest accrues on your federal student loans. Federal Direct Loan, Federal Family Education (FFEL) Program loan, and Perkins Loan borrowers can access deferment options. You may qualify for deferment in a few different ways, including while undergoing cancer treatment, during economic hardship, during a graduate fellowship program, while you’re in school, while completing military service or through post-active duty, if you are a Parent PLUS borrower and your student is still in school, while in a rehabilitation training program, and/or if you’re unemployed.
• Forbearance: While you can get a temporary pause on your federal student loans through forbearance, interest might accrue on your loans. You must continue to pay any interest that accrues during the forbearance period. There are two types of forbearance: general and mandatory.
• General forbearance: You may be able to obtain general forbearance if you experience financial difficulties, medical expenses, a change in your employment status, and other factors. If you have federal Direct Loans, FFEL Program loans, and/or Perkins Loans, you may be able to use general forbearance for no more than 12 months at a time. You can request another general forbearance later. However, over time, you can only obtain three years’ worth of general forbearance.
• Mandatory forbearance: Your loan servicer must grant a mandatory forbearance for federal Direct Loans and FFEL Program loans under the following circumstances: You receive a national service award while serving in AmeriCorps, under the U.S. Department of Defense Student Loan Repayment Program, during a medical or dental internship or residency program, or as a member of the National Guard activated by a governor. You can also access a mandatory forbearance if the amount you owe each month for all the federal student loans you received is 20% or more of your total monthly gross income or if you qualify for teacher loan forgiveness. You can qualify for mandatory forbearance for no more than 12 months at a time but may request mandatory forbearance when your current forbearance period expires.
Note that President Biden’s August 2022 announcement extended Covid-19 emergency forbearance relief for student loans through Dec. 31, 2022. This emergency forbearance relief includes loan payment suspension, a 0% interest rate, and no collections on defaulted loans.
As mentioned earlier, through an income-driven repayment plan, your monthly student loan payment gets set at an amount that reflects your income and family size. You can consider four income-driven repayment plans and fill out an application to be considered for one:
• Revised Pay As You Earn Repayment Plan (REPAYE Plan): When you access a repayment plan, your monthly payment is recalculated based on a percentage of your discretionary income. In this case, the REPAYE Plan will whittle down your payment to 10% of your discretionary income, and you’ll pay your loans back over 20 years (for loans for your undergraduate education) or 25 years (for loans for your graduate or professional education). If you have an eligible federal student loan, you can generally make payments through the REPAYE Plan.
• Pay As You Earn Repayment Plan (PAYE Plan): Your monthly payment will generally amount to 5% of your discretionary income and never more than the 10-year Standard Repayment Plan amount. You’ll repay your loans over 10 years. You may qualify if you have higher debt than your annual discretionary income or if your debt represents a significant amount of your annual income. Additionally, you must be a new borrower in order to be eligible.
• Income-Based Repayment Plan (IBR Plan): Under Biden’s new plan, your monthly payment will generally amount to 5% of your discretionary income if you’re a new borrower (on or after July 1, 2014) but will never amount to more than the 10-year Standard Repayment Plan amount. If you’re not a new borrower (on or after July 1, 2014) your monthly payment will generally amount to 15% of your discretionary income and will never add up to more than the 10-year Standard Repayment Plan amount. For new borrowers, the plan will last for 10 years. If you’re not a new borrower, your plan will last 25 years. You’ll generally qualify if your federal student loan debt is higher than your annual discretionary income or represents a large portion of your annual income.
• Income-Contingent Repayment Plan (ICR Plan): Your payment will be calculated based on the lesser of these two factors: 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted based on income. You’d repay for 25 years as long as you qualify with an eligible federal student loan.
Recommended: REPAYE vs PAYE: What’s the Difference?
Are There Any Protections for Private Student Loans?
Private loans generally don’t qualify for forgiveness and offer fewer protections than federal loans. However, it’s worth looking into the protection and hardship options for various private lenders.
Based on a search of top private lenders, check out the table below to walk through the types of programs offered by various private student loan lenders:
|Reduced repayments for dental/medical residents||X||X||X|
|Death or disability discharge||X||X||X||X|
|Maternity leave forbearance||X|
|Extended payment option||X|
Can Private Student Loans Be Forgiven by the Federal Government?
As noted above, private student loans do not qualify for federal loan forgiveness. However, there are several other alternatives that you can consider through your private loan lender. Though you can’t apply for income-driven repayment plans or take advantage of federal student loan forgiveness, your private loan lender can walk you through your options in order to avoid delinquency or default on your loans.
Can Refinanced Student Loans Be Forgiven by the Federal Government?
You may be wondering, “does refinanced student loan forgiveness exist?” Since refinanced student loans turn into private loans, refinanced student loans cannot be forgiven by the federal government, one of the key differences between federal vs. private student loans. That said, when refinancing, you choose the amount. So if you refinance everything but the $10,000 or $20,000 you expect to be forgiven, that remaining amount of federal student debt still has federal protections and is eligible for forgiveness.
You may have also have heard about the possibility of the Biden administration offering loan forgiveness on a wide scale and may wonder, “Will refinanced student loans be forgiven in addition to non-refinanced private loans?” Unfortunately, the current plan applies only to certain federal student loans, and there is no proposal to include refinanced student loans in the future. The administration would likely not be able to forgive the loans of private student loan borrowers or in the case of refinanced student loans.
Options to Consider When You’re Unable to Make Your Student Loan Payments
As mentioned, it’s a good idea to contact your loan servicer to calmly explain how you’re having trouble making your student loans. In most cases, your lender will work with you to discuss a schedule for affordable payments.
Here are a few other options you may want to consider in this situation:
• Put together a budget: Putting yourself on a budget may help you allocate the right amount toward all of your expenses, including your student loans.
• Get an extra job: Consider getting an extra job in order to generate more income to put toward your student loans.
• Cut expenses: It’s easy to spend too much on subscriptions, cable, or other things. Cutting expenses could free up money so you have more to put toward your student loans.
• Explore student loan modification: You may also pursue a student loan modification, or a change to the terms and conditions of the repayment of an existing student loan. Learn how student loan modification works.
• Refinance: Finally, consider refinancing your student loans to a private loan lender to lower your interest rate or your payments. You can use our calculator for student loan refinance rates to see how much refinancing could potentially save you.
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Explore Student Loan Refinancing With SoFi
Because refinancing federal student loan(s) means converting them to a private student loan, the amount of federal debt that you refinance will no longer be eligible for federal forgiveness or other federal benefits. So if you are eligible for Biden’s one-time forgiveness, you can leave out the amount you expect to be forgiven — and refinance the rest.
If you think a refinance fits your needs, don’t forget to look into all of the benefits and drawbacks that apply to your particular lender. For example, if you’ll owe a penalty if you pay off your student loans early, you may want to explore other options. Check out refinancing student loans now with SoFi, which offers competitive rates and charges no prepayment penalties.
Can private student loans be forgiven?
You cannot access the same loan forgiveness options for private student loans that you can get with federal student loan forgiveness. However, don’t discount the private student loan protections you can take advantage of when you want to refinance your student loans.
Can you get your student loans forgiven if you can’t afford them?
Yes, you can get your federal student loans forgiven as long as you meet the eligibility requirements — but it’s important to remember the key words “federal student loans.” You cannot get private student loans forgiven.
When will student loans be forgiven?
On Aug. 24, 2022, President Joe Biden announced that individuals who earn less than $125,000 per year will be eligible for $10,000 in federal student loan cancellation and Pell Grant recipients are eligible for an additional $10,000 of forgiveness. This will likely take effect in early 2023. For now, the payment pause on most federal student loans have been paused and interest has been set at zero, with collections suspended against defaulted federal student loan borrowers through Dec. 31, 2022.
Photo credit: iStock/damircudic
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.