President Joe Biden (Photo by Anna Moneymaker-Pool/Getty Images)
Getty ImagesMaybe Senate Democrats don’t want student loan cancellation after all.
Here’s what you need to know.
Student Loans
As Congress passed a $1.9 trillion stimulus bill with $1,400 stimulus checks, unemployment insurance, and tax-free student loan forgiveness, a group of Senate Democrats have proposed an alternative to student loan cancellation. U.S. Senators Mark Warner (D-VA), Jon Tester (D-MT) and Angus King (I-ME) have proposed new legislation, The Coronavirus Emergency Student Loan Refinancing Act of 2021, to help you refinance student loans to a lower interest rate. Importantly, student loan cancellation means Congress would cancel your student loan debt and you don’t have to pay it back. Student loan refinancing means you would get a lower interest rate; while you would save money, you still have to pay back your student loans. Here’s how the proposal to refinance student loans would work:
Undergraduate Student Loans
For undergraduate student loan borrowers with Federal Direct Stafford, Unsubsidized, PLUS and Consolidated student loans:
- Interest rate: 10-year U.S. Treasury rate + 2.05%
Graduate Student Loans
For graduate student loan borrowers with Federal Direct Stafford or Unsubsidized loans:
- Interest rate: 10-year U.S. Treasury rate + 3.60%
MORE FOR YOU
PLUS Loans
For borrowers with PLUS loans:
- Interest rate: 10-year U.S. Treasury rate + 4.60%
Student Loan Refinancing Q&A
Can you refinance student loans with the federal government?
No, currently you can’t refinance student loans through the federal government. This proposed legislation, if passed in Congress, would enable you to refinance federal student loans.
What are the requirements to refinance federal student loans with the federal government?
The latest student loan debt statistics show that 45 million borrowers collectively owe $1.7 trillion in student loan debt. The legislation doesn’t specify what the requirements would be to refinance student loans through the federal government. That said, borrowers would have to be “in good standing” and meet eligibility requirements based on income or a debt-to-income ratio established by the U.S. Department of Education. The legislation doesn’t specify an income or a debt-to-income ratio threshold.
Can you refinance private student loans?
This proposed legislation only applies to federal student loans, including Direct Loans and FFELP Loans. However, private student loan debt would not be eligible to refinance through the federal government.
Would this student loan refinancing be automatic?
No, you would have to apply to refinance student loans with the federal government.
What is the 10-year Treasury yield?
Your new interest rate would be based on the lowest yield on the 10-year Treasury note in the preceding six months. Currently, the 10-year Treasury yield is 1.56%, but this can change (making your interest rate potentially higher or lower). Based on this yield, here’s how interest rates on your student loans would look:
- Undergraduate Student Loans: 3.16%
- Graduate Student Loans: 5.16%
- PLUS Loans: 6.16%
The interest rate on a federal student loan isn’t based on your underlying credit quality. This means that when you borrow student loans, everyone gets the same interest rate. So, whether you have a good credit score or a bad credit score, you would get the same interest rate when you refinance student loans under this proposed legislation.
Can you still refinance student loans with a private lender?
Yes, you can still refinance student loans with a private lender. If Congress passes this proposed legislation, it would be completely optional. You can still refinance your private and federal student loans with a private lender. Interest rates for student loan refinancing with a private lender are currently near an all-time low, and start at 1.9%.
Will your student loans get cancelled?
This proposal for student loan refinancing doesn’t explicitly mention student loan cancellation. So, if Congress passes student loan refinancing, it’s still possible Congress also passes student loan cancellation. In the new stimulus bill, the Senate passed a provision that makes student loan forgiveness tax-free through December 31, 2025. This will be especially helpful to student loan borrowers with an income-driven repayment plan, who won’t owe any income tax on student loan forgiveness before the end of 2025. The provision would also help borrowers who get any student loan cancellation, if Congress or the president acts on cancelling student loans. (Here’s what the stimulus bill suggests about student loan cancellation).
That said, you can consider this new proposal for student loan refinancing to be an alternative proposal to student loan cancellation from moderate Democrats. While progressives like Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) want student loan cancellation by executive order, moderate Democrats may not support wide-scale student loan forgiveness. Congress also cut the income threshold for stimulus checks, which could mean Congress could lower the income threshold for student loan cancellation too. Student loan refinancing may be one potential compromise position. However, the downside is that you can’t refinance private student loan debt and the interest rates would be higher than what you could get, if approved, with a private lender. If you have a good credit score and stable income, for example, you may be better off refinancing student loans with a private student loan lender.
As you consider strategies to pay off student loans faster, here are some potential options for student loan repayment:
Student Loans: Related Reading
17 million won’t get stimulus checks—expect the same for student loan cancellation
Student loan cancellation excluded from new stimulus package
Student loan cancellation less likely if stimulus checks get cut
Bernie Sanders: Let’s cancel student loans without Republicans
The Link LonkMarch 08, 2021 at 08:30PM
https://www.forbes.com/sites/zackfriedman/2021/03/08/democrats-say-forget-student-loan-cancellation-refinance-student-loans-instead/
Democrats Say Forget Student Loan Cancellation, Refinance Student Loans Instead - Forbes
https://news.google.com/search?q=forget&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment