President Joe Biden announced the much anticipated and (mostly) widely lauded administration’s plan for loan forgiveness on Aug. 24. However, beyond the framework announced at the time, details are still scant, potentially creating a slew of issues and some confusion for borrowers.
Under the plan, there will be up to $10,000 in federal student debt relief for most borrowers, up to $20,000 for recipients of Pell Grants, as well as an extension of the payment pause “one final time” to Dec. 31., according to a White House fact sheet.
But now, several student loan companies are offering borrowers the option to refinance to private loans, which could prevent them from getting debt relief, Insider reported, adding that this prompted the Consumer Financial Protection Bureau (CFPB) to say it raises “serious concerns.”
According to Insider, several loan companies sent emails to borrowers after Biden’s announcement “breaking down the difference between federal and private student loans, and offering its refinancing tool to borrowers that would offer lower interest rates.” While the switch to a private loan might provide lower interest rates, the refinancing could lead borrowers to miss out on debt cancellation.
As CBS reported, “private student loan forgiveness isn’t impossible, but it’s unlikely. After all, Mr. Biden’s action is tied to the federal government. Loans owed to private lenders are different.”
While Biden could theoretically “attempt to have the government wipe out the balance sheets of select private lenders,” CBS added, that such an arrangement was “not something that [Biden] announced, offered or even seriously suggested.”
“With $10,00 to $20,000 in debt relief on the table for the majority of federal student loan borrowers, the benefits to having a federal student loan have never been more tangible,” CFPB Advisor to the Director Andrea Matthews told Insider. This raises serious concerns about whether student lenders are fairly representing the tradeoffs of refinancing to a private loan.”
The Department of Education said on its website that an online forum will be available by October. In the meantime, the department recommended some steps borrowers can take. First, check if you’re eligible. Then, make sure you will receive updates by confirming your information on the StudentAid.gov website. In addition, verify that your loan servicer has your most current contact information so they can reach you.