- Biden announced up to $20,000 in student-loan forgiveness for some federal borrowers.
- But some student-loan companies are offering borrowers the option to refinance to private loans.
While many might be rejoicing President Joe Biden's student-loan forgiveness announcement, borrowers should be especially careful with how they're handling their debt right now.
In late August, Biden announced up to $20,000 in debt cancellation for Pell Grant recipients making under $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 Biden promised relief on his campaign trail, but it also sparked some confusion among millions of federal borrowers regarding eligibility requirements, how to apply, and the timeline for this relief.
Many of the student loan servicer sites where borrowers access their balances were down for hours following Biden's announcement. Major servicers like Nelnet and Navient urged borrowers to stop calling with questions, given they did not know anything beyond what the Education Department released publicly.
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 multiple emails sent to borrowers from Navient breaking down the difference between federal and private student loans, and offering its refinancing tool to borrowers that would offer lower interest rates.
A Navient spokesperson pointed Insider to the fine print of the email, which explained that borrowers could be at risk of losing federal benefits like Biden's student loan forgiveness if they refinance. The spokesperson added that "for a number of years, we have reached out to prospective borrowers about their options to refinance to lower rates with NaviRefi," its refinancing tool.
Still, in a consequential time for federal student-loan borrowers, refinancing could lead borrowers to miss out on broad debt cancellation — even if it does provide them with lower interest rates on their debt. Consumer Financial Protection Bureau (CFPB) Advisor to the Director Andrea Matthews told Insider that "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."
"This raises serious concerns about whether student lenders are fairly representing the tradeoffs of refinancing to 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 federally-held student loans are eligible for debt cancellation. That includes federal undergraduate loans, spousal loans, graduate loans, and PLUS loans for graduate student and parents — and borrowers in the Federal Family Education Program (FFEL) with loans that were transferred to the Education Department can also qualify. Borrowers with private student loans will not be able to access this relief, though, so federal borrowers considering refinancing should keep that in mind.
Leading up to Biden's announcement, some loan companies were creating confusion by telling borrowers they had payments due in September despite the administration instructing any messaging surrounding a payment restart to be held off. The companies themselves even said it could take time to fully account for any changes Biden announces, so borrowers should be aware the timeline for relief might be longer than anticipated.