While many may be rejoicing over President Joe Biden’s announcement of student loan forgiveness, borrowers should be extra careful about how they manage their debt right now. In late August, Biden announced up to $20,000 in debt forgiveness for Pell Grant recipients earning under $125,000 a year and up to $10,000 in debt relief for federal borrowers with the same income limit. It was a long-awaited announcement since Biden promised relief on the campaign trail, but it also caused some confusion among millions of federal borrowers about eligibility requirements, how to apply and the timeline for that relief. Many of the student loan servicer websites where borrowers access their balances were down for hours after Biden’s announcement. Major servicers like Nelnet and Navient urged borrowers to stop calling with questions, since they knew nothing beyond what the Department of Education released. Adding to the confusion were emails from 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 the refinancing tool to borrowers that would offer lower interest rates. A Navient representative showed Insider the fine print of the email, which explained that borrowers could risk losing federal benefits, such as Biden’s student loan forgiveness, if they refinance. The spokesperson added that “over a number of years, we have contacted prospective borrowers about their options to refinance at lower rates with NaviRefi, its refinancing tool. However, at a later time for federal student loan borrowers, the refinancing could result in borrowers losing out on broad debt forgiveness — even if it provides them with lower interest rates on their debt. Counsel to the Director of the Consumer Financial Protection Bureau (CFPB) Andrea Matthews told Insider that “with $10,000 to $20,000 in debt relief on the table for the majority of federal student loan borrowers, the benefits of getting a federal student loan have never been greater. tangible.” “This raises serious concerns about whether student lenders fairly represent the trade-offs of refinancing in a private loan,” he said. The Department of Education did not respond to Insider’s request for comment. As the White House has made clear, all federal student loans are eligible for debt forgiveness. This includes federal undergraduate loans, spousal loans, graduate loans and PLUS loans for graduate students and parents — and borrowers in the Federal Family Education Program (FFEL) with loans transferred to the Department of Education may also qualify. However, borrowers with private student loans will not be able to access this relief, so federal borrowers considering refinancing should keep this in mind. Before Biden’s announcement, some loan companies were causing confusion by telling borrowers they had payments due in September, despite the administration ordering that any messages about resuming payments be suspended. The companies themselves also said it could take time for any changes Biden announces to fully take effect, so borrowers should be aware that the timeline for relief could be longer than expected.
