Are private student loans waived?
The short answer: no.
The administration is currently only considering the cancellation of federal student loans. And in the final report, his forgiveness plan will include a $10,000 cap on federal student loan borrowers, with income limits on individual taxpayers earning $150,000 or less, or $300,000 combined. Federal borrowers are still awaiting the announcement of official plans. And the moratorium that suspended federal student loan payments is scheduled to end on August 31, 2022.
What happens to private student loans?
Personal student loans are made by financial institutions such as banks, credit unions, and credit card issuers like Discover. These loans cannot be forgiven because they are not distributed by the Ministry of Education. And borrowers on those loans weren’t exempt from paying during the federal student loan payment pause.
Also, unlike government student loans, interest rates on private student loans are variable. This means that as the Federal Reserve raises its benchmark interest rate — the government’s main anti-inflation tool — interest rates on these loans will also rise. In contrast, federal interest rates on student loans are set by the government and are fixed over the life of the loan.
For example, federal student loans borrowed between July 1, 2022 and June 30, 2023 have a fixed interest rate of 4.99%. Prices reset every July. For private student loans, the interest rate can range from 1% to 13%.
Why are the prices so different?
The interest rates for private student loans depend on the creditworthiness of the borrower. To get the best interest rate, you need good to very good credit. (For FICO, that range is 670 to 800.) Or you would have to have a co-signer on the loan to lower your interest rate.
If you currently have a personal student loan, there are ways to lower your interest rate. Talk to your lender and ask if they would be willing to lower your interest rate. Or you can ask for the monthly payment to be lowered — especially if your income has recently dropped.
Should You Refinance?
Another solution to lowering your ongoing payments is to refinance your loan at a lower interest rate. If possible, try to set a lower interest rate as soon as possible, since interest rates are generally rising.
However, don’t blindly jump into a new loan at a lower interest rate, especially if you currently have a federally issued loan. Refinancing into a non-federal government loan also means opting out of some of your current protections, including the ongoing suspension of interest charges. It may make more sense to wait until the end of the repayment moratorium to refinance, even if you pay a higher total interest rate for the time being.