These 2.4M borrowers may not get student loan forgiveness

Americans with private student debt wouldn't meet the eligibility requirements for widespread federal loan forgiveness that's proposed by prominent Democrats. (iStock)

The total outstanding student loan debt continues to climb as many borrowers don't have access to debt relief programs, such as student loan forgiveness. But even if President Joe Biden is able to deliver on his campaign promise to cancel $10,000 worth of federal student debt per borrower, not everyone will be eligible.

One example of this is private student loan debt, which is held by banks and online lenders instead of the federal government. About 2.4 million Americans have private student loans, collectively owing $132 billion, according to the Education Data Initiative

Private student loans may not be eligible for widespread student loan forgiveness measures if the Biden administration is somehow able to enact such legislation. Plus, private loans aren't eligible for discharge through existing federal student loan forgiveness programs, such as the Public Service Loan Forgiveness program (PSLF).

Keep reading to learn more about who is ineligible for student loan forgiveness, as well as what borrowers can do to reduce their student debt. One option is refinancing to a new private loan at a lower interest rate. You can compare student loan refinancing rates on Credible for free without impacting your credit score.


Private student loans won't qualify for federal forgiveness

The vast majority of student loan borrowers have federal loans, which are administered by the Department of Education. But millions of borrowers have private student loan debt that's held by third-party financial institutions. 

Because private student loans aren't owned by the federal government, they wouldn't be eligible for student loan cancellation coming from the federal level. Private loans also didn't qualify for COVID-19 administrative forbearance, which has temporarily paused the payments and interest on federal student loans through May 1, 2022.

The reason why private loans wouldn't likely qualify for federal relief is due in part to the legal precedent set by the Higher Education Act of 1965. This statute gives the Secretary of Education the power to "enforce, pay, compromise, waive, or release any right" to collect on federal student loans, but that doesn't extend to loans held by private lenders. 

Theoretically, the federal government could pay off private lenders to effectively discharge student loan debt, but this would be a complicated process that's not currently being discussed at the federal level. The current proposal for Senate Democrats to implement $10,000 worth of student loan relief applies to federal student loan borrowers only.

Private student loan borrowers who wouldn't qualify for federal debt forgiveness may be considering alternative student loan repayment options, such as refinancing. Student loan refinancing is when you take out a new private loan with better terms to pay off your existing student debt. Refinancing to a lower interest rate may help you reduce your monthly student loan payments, pay off debt faster and save money over time.

You can learn more about student loan refinancing by getting in touch with a knowledgeable loan expert at Credible. Then, you can decide if refinancing is the right repayment plan for your financial situation.


What to do if you don't qualify for student loan forgiveness

Borrowers with private student loan debt won't likely benefit from federal loan forgiveness, which means that private borrowers may be exploring their alternative debt repayment strategies. If you're struggling to repay your private student loan debt, here are a few moves to consider:

  • Talk to your lender. Depending on your circumstances, you may qualify for private student loan forbearance or deferment. Keep in mind that interest may accrue on your loans while you're not in repayment, adding to the total cost of the loan.
  • Ask your employer about student loan repayment assistance programs. Some companies offer a student loan matching benefit, in which they help you pay down your student loan balance. If you're hunting for a new job, look for employers that offer this benefit.
  • Refinance your student loan debt. Private student loan refinancing rates are near record lows, according to data from Credible. It may be possible to lock in a lower interest rate on your student loans, which can help you lower your monthly payments and pay off your debt faster.

It's important to note that refinancing your federal student loans into a private loan would make you ineligible for any future widespread loan cancellation, such as the measures proposed by the Biden administration and several prominent Democrats. But if you have private student loans that wouldn't qualify for forgiveness, then you have nothing to lose by refinancing to a lower rate.

You can browse current student loan refinancing rates from private lenders in the table below, and visit Credible to see offers tailored to you. If you're still not sure if this debt repayment strategy is right for you, use a student loan refinance calculator to estimate your potential savings. 


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