Unfortuantely, Biden’s options for canceling private student loans are limited.

Can Private Loans be Cancelled or Forgiven?

When politicians and student loan advocates call for student loan cancellation, they are usually referring to federal student loans. For example, the likely to be announced $10,000 of loan forgiveness will only apply to federal loans.

Under the Higher Education Act, the President can “enforce, pay, compromise, [or] waive” federal student loans. Though there is some debate about the President’s authority to cancel federal loans, there isn’t a debate over private student loans. He cannot cancel them on his own.

If Biden wants to help private loan borrowers, he must get creative.

Getting Congress to Act

Congress could choose to cancel private student loans. They could draft legislation to pay off private student loans, and borrowers would be free from their debt.

Given the current political climate and composition of Congress, such legislation would seem highly improbable.

However, as President of the United States, Biden has considerable influence over Congress. He could aggressively advocate for private student loan cancellation. He could refuse to sign any Congressional legislation until they vote to cancel private loans.

Biden has already advocated for Congress to cancel $10,000 of federal student loans, but debt cancellation hasn’t been a high-priority item on his legislative agenda.

Converting Private Loans into Federal Loans

Most borrowers realize that federal student loans are far more likely to get canceled than private student loans.

I’ve heard from many clever borrowers who want to convert their private loans into federal loans so that the debt might one day be eligible for forgiveness.

There are a few tricks borrowers can use to convert private loans into federal loans, but these options are minimal.

Here again, Biden lacks the authority to convert debt via an executive order, but he could call on Congres to pass legislation to convert the debt. Allowing borrowers to consolidate their private loans into a federal loan would provide significant relief for many struggling borrowers.

Sadly, Biden hasn’t advocated opening up this option, and it has gotten minimal discussion in the halls of Congress.

Bankruptcy for Private Loan Borrowers

One area where advocates have made some headway is on the subject of bankruptcy.

Presently, student loans are difficult but not entirely impossible to discharge in a bankruptcy proceeding. Many bankruptcy attorneys are unable to help borrowers discharge their student debt.

Notably, there is at least some bipartisan support for restoring bankruptcy protections for student loan borrowers.

President Biden could advocate passing legislation to give private loan borrowers the ability to have their debt discharged via bankruptcy. Borrowers would prefer loan cancellation, but by offering bankruptcy protections, the borrowers in the worst circumstances could move forward from their private loans.

Sherpa Thought: As the President, Biden can make life very difficult for private loan lenders. In addition to calling for bankruptcy, he could push the CFPB to target private student loan lenders aggressively.

However, this course of action could have a downside for current and future students. As private student loan lending gets more risky or expensive, interest rates will increase. Thus, Biden must balance the interests of future borrowers against the interests of present borrowers.

Executive Orders to Cancel Private Loans

Many borrowers want Biden to issue an executive order canceling private student loans.

Unfortunately, he doesn’t have the legal authority to cancel debt in this manner. He can’t simply tell banks that borrowers no longer owe any more money.

In other words, for private student loan relief, borrowers need Congress to act.

Options for Private Loan Borrowers

If you have private student loans, help in the form of cancellation is unlikely.

For this reason, many borrowers focus on eliminating their private student loans before attacking their federal loans — even if it means paying off a loan with a slightly lower interest rate first.

Finally, student loan refinancing is a great option for some borrowers to get their private loans under control. Refinancing requires a decent credit score and income, but it can lower your interest rates and monthly payments.

As of November 2024, the following lenders offer the lowest interest rates on private loan refinancing:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

The post Biden’s Options Cancel Private Student Loans appeared first on The Student Loan Sherpa.

Biden altered policy to help thousands of borrowers qualify for PSLF. He has extended the student loan interest freeze multiple times. The Department of Education is now updating IDR payment counts to get thousands closer to forgiveness.

Best of all, it looks like federal student loan forgiveness is on the way.

Unfortuantely, these steps don’t help the borrowers struggling under the weight of massive private student loan debt. The student loan crisis arguably hits these borrowers the hardest, yet they’ve received the least help.

What could President Biden do to help private loan borrowers?

Limited Options to Help Private Borrowers

Many solutions that help federal borrowers are not available to private loan borrowers.

Private loans are governed by contracts between the borrower and the lender. While the government could enact some consumer protection measures, immediate relief for existing borrowers is complicated.

The federal government can’t realistically lower interest rates on private student loans. Likewise, the government can’t force private lenders to offer Income-Driven Repayment plans or student loan forgiveness. Government intervention in existing private contracts is a complex legal area. For this discussion, all we need to know is that President Biden can’t force lenders to lower interest rates or forgive $10,000 of debt for each borrower.

However, there are steps Biden could take to help borrowers.

Tax Incentives for Borrowers and Employers

One of the more realistic options to help private loan borrowers is to provide tax breaks.

The current student loan interest deduction is laughably small.

Biden could call on Congress to increase the deduction. He could take it a step further and push for student loan payments to be tax deductible.

Alternatively, the government could make it more appealing for employers to help their employees repay their debts. Right now, there is a temporary provision in place allowing employers to make tax-free payments toward employee student loans. The yearly contribution is capped at $5,250, and the policy expires after 2025. Making things permanent could encourage more employers to participate.

The problem with tax incentives is that they don’t help the private loan borrowers who need the most help. If you have a $1,500 per month private student loan bill and earn $2,000 per month, a tax incentive doesn’t make a difference.

Restoring Bankruptcy Protections to Private Student Loans

Student loan lenders get special protections in bankruptcy that other lenders don’t receive.

Credit card debt, personal loans, and mortgages are much easier to discharge in bankruptcy. Dealing with student loans is possible but extremely difficult.

Under the current rules, lenders are not worried about the possibility of the borrower declaring bankruptcy. They know that in the vast majority of cases, the borrower has no choice but to repay the debt in full.

If private student loans were treated like other debts in a bankruptcy proceeding, the revised rules would incentivize lenders to keep payments affordable and manageable. Right now, lenders are ruthless with many borrowers because they have almost no incentive to cut borrowers slack.

Federal Refinance of Private Student Loans

Currently, the options for borrowers to convert private student loans into federal loans are extremely limited.

However, the government could offer to refinance existing private student loans. This move would give private loan borrowers access to federal repayment plans and loan forgiveness options.

The problem with this approach is that the government would take on large amounts of bad debt. The program could cost taxpayers large sums of money.

Likewise, some might see the program as a handout to private lenders. Collecting full value from borrowers unlikely and unable to pay would greatly benefit private lenders.

A Real Fix for Private Loan Borrowers

Ultimately, the real problem is the price of college.

Many schools charge tuition that doesn’t reflect the value of a degree. Because lenders don’t fear bankruptcy, they offer riskier private loans to students.

If the cost of college reflected the value of the education, fewer students would face a private loan nightmare.

Biden and Congress likely cannot fix this issue with one piece of legislation or one new policy. Sadly, elected officials from both political parties are guilty of letting the price of college spiral out of control.

Fixing the unreasonably high prices of college won’t help the existing private loan borrowers. However, it will ensure that we see fewer private loan nightmares in the future.

The post What Could Biden do to Help Private Student Loan Borrowers? appeared first on The Student Loan Sherpa.

While refinancing can undoubtedly be a good option for some borrowers, it comes with major risks for federal student loan borrowers.

Refinancing a Federal Loan into a Private Loan

When you refinance, you are essentially borrowing money from a new lender to pay off an old loan. The money never passes through your hands, but the end result is that your old loan is paid in full and replaced with new debt from a new lender.

The typical advantage of this process is either lower monthly payments or a lowered interest rate.

However, because the federal government doesn’t refinance student loans, borrowers must use a private lender to refinance their government loans. Thus, borrowers erase the federal loans and federal benefits and replace them with a private loan and new terms.

Risks from Passing on Student Loan Forgiveness and Income-Driven Repayment

Refinancing means giving up on all of the federal student loan perks. This includes borrower protections like Income-Driven Repayment and Student Loan Forgiveness.

Public Service Loan Forgiveness is the forgiveness program that gets the most attention from borrowers and the media, but there is a long list of government loan forgiveness programs. Not all borrowers qualify for forgiveness, but refinancing permanently erases the possibility of forgiveness. This is a much more significant risk for some borrowers than others.

Income-Driven repayment is a valuable federal loan perk, even if you choose a different repayment plan. The value of an IDR plan is the safety net that it provides. If you ever lose your job or take a big pay cut, IDR options ensure payments stay affordable. Borrowers facing long-term unemployment can qualify for $0 monthly payments for as long as necessary.

Other Risks to a Private Refinance of Government Loans

The tricky part about accessing the risk of refinancing your federal loans is that it’s impossible to know for sure what you are giving up.

The current federal repayment plans and forgiveness programs may seem lousy, but future options might be more appealing.

For example, some borrowers refinanced their federal loans in the summer of 2019. They likely made this decision to save money on interest while in repayment. The Covid-19 payment and interest freeze wasn’t on anybody’s radar in the summer of 2019. Unfortuantely for those who refinanced at that time, refinancing ended up costing more in interest.

That said, the odds of forgiveness for all look bleak for the foreseeable future. The decision to bet on future government help is also pretty risky.

Sherpa Thought: The decision to refinance or not refinance requires balancing some unknowns. You don’t know what your future holds, and you don’t know what the future holds for federal loans.

The important thing is to make a sound decision based upon the information available at the time. Gather as much information as you can and weigh your options as they apply to your circumstances.

Who Should Refinance Federal Loans?

This is the $89,512 question. (Feel free to insert your loan balance.)

Let’s take care of the obvious answers first. If you have private loans, you can refinance those without much concern. If you are currently benefiting from the federal interest freeze or pursuing loan forgiveness, don’t refinance your federal loans.

Now for the more complicated choices. I’d say two requirements must be met to make refinancing a federal loan make sense.

1. Refinancing must be worth it. When I say “worth it” I mean that the benefit of refinancing needs to be considerable. Don’t refinance to lower your intereest rate by .125%. Don’t refinance to lower your monthly payment by a few bucks. Refinancing federal loans only makes sense if there is an opportunity to save a significant amount of money.
2. Repayment needs to be assured. If you have doubts about your ability to repay your student debt, don’t refinance your federal loans. If you earn a good living and think you will be able to find new work if your lose your job, refinancing becomes less risky.

Ultimately, you need to balance the pros and the cons. If the benefits of refinancing outweigh the risks, it could be a good option.

As of November 2024, the following lenders currently advertise the lowest refinance rates.

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

Based upon the current market conditions, my favorite loan is the 20-year, fixed-rate loan. The interest rate is slightly higher than the 5-year loans, but the monthly payments will be much lower and far more flexible.

The following lenders currently have the lowest rates on 20-year, fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Final Thought on Refinancing Federal Student Loans

I tend to be pretty risk-averse with my financial decisions. If you also like to play it safe, there is nothing wrong with paying a bit more in interest to keep your loans with the federal government.

The post Why is it Risky to Refinance Federal Loans into a Private Loan? appeared first on The Student Loan Sherpa.

The reality of the situation is that private loan forgiveness is either a long way away or will never happen. However, there are a few tricks that borrowers can use to help their cause.

Private Debt Cancellation Probably Won’t Come From The Federal Government

At this point, it is safe to say that any forgiveness for all or debt cancellation program from the Biden White House will apply only to federal student loans.

Private student loan forgiveness would require legislation to get through Congress. Republicans would uniformly oppose such a measure, and many Democrats would also object.

However, there are other opportunities for forgiveness for private borrowers.

Converting Private Student Loans Into Federal Loans Eligible For Forgiveness

If federal loans have the best path to forgiveness, turning private loans into federal loans is an obvious fix.

Unfortunately, options for this sort of conversion are limited. No mechanism exists to consolidate private debt into federal debt.

However, creative borrowers can essentially convert their private loans into federal loans using a couple of clever strategies:

• Borrowers still in school can use any income or savings to pay down their private debt. Most borrowers use their income from summer work to reduce what they borrow the following year. Instead, borrowers can use this income to pay down high-interest private loans. The next year, these borrowers target federal loans to pay for school. This process replaces private debt with federal debt. It can be especially effective for graduate students with high federal borrowing limits.
• Borrowers in repayment can leverage federal repayment options to pay down private debt. If a borrower can get a lower payment on their federal loans, they can pay extra toward their federal loans. With a large variety of federal repayment plans available, many borrowers can find lower monthly payments. Making this switch means the private debt disappears quicker, and the federal debt lasts longer.

Borrowers interested in converting private debt into federal debt should check out this article.

Employer Loan Assistance Programs

Calling employer help a form of forgiveness or cancellation is a bit of a stretch.

However, it is a reasonable path to eliminate student debt without making payments. Some employers are far more generous than others, but many organizations are starting to offer this perk.

Borrowers should investigate this option with their current employer and ask about it when they are looking for a new job. The employer help can take a variety of formats, but it may provide a significant boost to borrowers.

Death and Disability Discharge

Some private student loans may include a provision that forgives the student debt if the borrower dies or becomes permanently disabled.

Obviously, these strategies are not reasonable options for borrowers looking for loan forgiveness or cancellation. However, it is worth mentioning because borrowers should pay close attention to the death and disability provisions of their student loans. Many loan contracts do not include this important consumer protection. If something happens to the borrower, lenders may pursue money from the borrower’s cosigner or estate.

If your lender does not cancel debt for dead borrowers, there are ways to protect your cosigner. First, there are many options to get the cosigner release from the loan. Second, an insurance policy can help make sure a tragedy doesn’t become a financial catastrophe for the cosigner.

Giving Up on Private Student Loan Forgiveness or Cancellation

Sadly, the options for private loan help are quite limited. The vast majority of borrowers will be stuck repaying their loan balance in full.

At the point where cancellation is off the table, the next best option is to get a lower interest rate by refinancing your loans. Finding a better interest rate can significantly reduce the total cost of repayment. The downside to refinancing is that it is only available to borrowers who have a decent credit history and employment. Those who truly need the help will have a hard time qualifying.

The best interest rates currently available are with the following lenders:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

The post Student Loan Forgiveness for Private Loans appeared first on The Student Loan Sherpa.

This purpose of this guide is to help borrowers identify the best student loan for their particular circumstances.

Some loans are objectively terrible, while others might be the necessary tool to fund an education. The tips and suggestions in this guide come from nearly a decade of work helping borrowers deal with the consequences of their student loan decisions. I normally advise against borrowing when possible, but if a student loan is required, it is critical to avoid mistakes.

Should I Borrow a Federal Government Loan or a Private Student Loan?

One of the biggest mistakes that a student can make is borrowing private student loans instead of federal government loans.

Extensive borrower protections make federal student loans are a much better option. In addition to the many student loan forgiveness programs, there are also repayment plans that charge borrowers based upon how much they can afford rather than what they owe. These borrower protections help borrowers avoid student loan nightmares.

People attend college with the expectation of getting a degree and a good job. Unfortunately, some of these students will not ever graduate. Others won’t find a job in their field of choice. Others may choose less lucrative but more meaningful work. The wide variety of potential outcomes makes it essential to choose flexible student loan options.

The problem with private loans is their unforgiving nature. Many lenders have little patience for late or missed payments. Making things even more complicated is that bankruptcy from student loans is nearly impossible under the current rules. Borrowers who owe more than they can ever afford may end up making student loan payments for life. They also run the risk of damaging their credit score.

With high stakes and an uncertain future, federal loans are the better option.

The only time a private loan might make more sense is for a borrower who plans on quickly paying back their debt. A borrower opting for a private loan must be certain that they can afford all future payments. An example might be a non-traditional student going back to school for a few classes.

Absent a situation where repayment is a certainty, federal loan flexibility outweighs even the best interest rate offerings on private loans.

The Differences Between Federal Subsidized Loans and Unsubsidized Loans

With a subsidized loan, the government pays the interest during school and in a few other limited circumstances. Unsubsidized federal loans mean that the borrower is on the hook for all of the interest.

As one might expect, getting subsidized loans is more difficult than getting an unsubsidized loan. The good news is that it is only slightly more difficult.

The first significant limitation on subsidized student loans is that the federal government imposes much lower borrowing limits.

The other major limitation is that a student must demonstrate a financial need to get a subsidized federal loan. Fortuantely, the applications for both types of loans are identical. Students and their families must complete the FAFSA. Students from families with limited income may qualify for subsidized loans. At minimum, most families will qualify for an unsubsidized federal loan. The only way your family wouldn’t qualify is if your EFC was greater than the estimated cost of attendance for your school. This normally doesn’t happen if your income is less than $300,000 per year.

Should I get a Parent PLUS Loan or Co-Sign a Private Student Loan?

Parent PLUS loans are federal student loans, but they have limitations. Instead of being borrowed by the student, the parent borrows the loan. When paying for college, this difference may seem small, but in repayment, it is a significant difference. The loan is in the parent’s name, and the parent is responsible for the debt. This system creates issues when the parent expects the child to pay and the child expects the parent to pay. The debt collectors will chase after the parent.

Another key difference between a parent PLUS loan and most other federal student loans is that the interest rate and fees associated with the loan are higher. At present, the interest rate is 5.30%, and the loan origination fees are over 4%.

Additionally, Parent PLUS repayment plans are more limited than the options for other federal student loans.

These higher rates and fees combined with more limited options make Parent PLUS loans noticeably different than other federal student loans. Families should probably treat Parent PLUS loans as a viable option, but it isn’t the no-brainer that other federal loans are.

The option that many parents consider in place of a Parent PLUS loan is to co-sign their child’s private loan. Often students lack the credit history to qualify for a private loan on their own, so lenders require a parent to co-sign the loan.

Deciding between these two options can come down to the parent’s ability to pay for the debt. If the monthly payments might become an issue, it is safer to go with the Parent PLUS loan and all of its warts.

Graduate PLUS Student Loan Options and Alternatives

For students going after a graduate degree, the Graduate PLUS loan can be a great option.

Unfortuantely, like Parent PLUS loans, the interest rates and loan origination fees are higher than most other federal student loans. The good news is that, unlike a Parent PLUS loan, Graduate PLUS loans have a wider variety of repayment plans and forgiveness options.

For most graduate students, the choice comes down to a Graduate PLUS loan or a private loan. In most cases, the Graduate PLUS loan is the preferred alternative.

Even though the Graduate PLUS loan does have higher interest rates, it is money well spent due to the federal protections. Many graduate students borrow upwards of $100,000. If there is any uncertainty in the job market or borrower’s ability to pay, having student loans with forgiveness provisions is a huge security blanket.

Private loans start to make sense for those with a high degree of confidence in their ability to repay. An example would be someone returning to school to get an MBA at night. Students can minimize borrowing costs if they have a sufficient current salary to handle future loan payments.

Selecting the Best Private Student Loan

Concluding that a private student loan is the only way to pay for college can be scary. The risks are higher, but if the gamble pays off, it can lead to a valuable degree and a bright future.

Students deciding to choose a private student loan should know that these loans are not all created equal. Some private student loans are far better than others.

Because there are many lenders offering these loans, students should insist that they not be charged any loan fees, such as an origination fee or is disbursement fee. Students should also be sure to shop around to get a low interest rate loan. A difference of even a fraction of a percent can add up to a lot of money in repayment.

One crucial detail to understand is that the rates advertised by lenders are not necessarily the rates actually offered. Most lenders have their own unique criteria for evaluating applications, and each lender may give different weights to credit history, school, and area of study. Companies like credible can help students compare rates with a number of lenders. The key is to cast a wide net.

Even if a student can find an excellent loan, it is still critical to only borrow that which is necessary. If you live off private student loans, you should be careful to keep expenses as low as possible.

Borrowing Money When Student Loans are Not an Option

A common question that we receive is from students who are not able to get any student loans. They want to know what the next best option is to pay for school. This situation normally occurs because they have borrowed the maximum estimated cost of attendance as determined by their school or cannot qualify for any more student loans.

In either scenario, the difficulty of getting a student loan should be a huge red flag. Either the school is saying that it shouldn’t cost that much to attend, or lenders are unwilling to provide money because they don’t think they will get paid back. These large institutions are skilled at evaluating risk, so students should take the denials and rejections seriously.

Is there a less expensive alternative? Can the office of financial aid provide additional scholarships or grants? Is the school attended worth the cost?

Those that are truly desperate normally have to turn to a personal loan when all other student loan options do not exist. Personal loans normally have higher interest rates, and repayment starts immediately. Rarely is this route advisable.

Picking the Best Student Loan

The best student loan is not to get a student loan.

The second best student loan is one that is well researched and compared against the available alternatives. With a variety of federal and private loans to choose from, it is critical to spend some time evaluating the pros and cons of the possible choices. The work isn’t complicated or time-consuming, but it is essential to intelligent borrowing.

The post Picking the Best Student Loan appeared first on The Student Loan Sherpa.

Other than a couple of rare exceptions, private loans cannot be converted into eligible federal student loans.

While it might seem that eliminating private student loans and chasing after PSLF might be entirely different goals, they are not. Borrowers dealing with private loans and considering PSLF have opportunities to achieve both goals.

Debt Elimination and PSLF Uncertainty

Many student loan borrowers face the difficult choice of chasing PSLF or opting for an aggressive repayment strategy.

The decision is much easier for borrowers with private loans. If PSLF is a possibility, but private loans are an immediate concern, borrowers can take the following steps:

• Make Progress Towards Forgiveness.
  • Verify that your employer is eligible for PSLF.
  • Use the Department of Education Loan Simulator to find the repayment plan with the lowest monthly payments.
  • Consider enrolling in the REPAYE plan for the interest subsidy.
• Attack the Private Student Loans.
  • Refinance if you can find better interest rates.
  • Pay extra each month to aggressively eliminate the debt. An additional ten bucks a month can make a difference.
  • Focus extra payments on the loan with the highest interest rate. Spreading out extra payments across all loans is less efficient.

This approach accomplishes a couple of important goals. First, it keeps the door open on PSLF. Second, it makes eliminating the more risky private student loans a priority.

If borrowers reach a point where PSLF is off the table, a more aggressive repayment strategy can be considered.

Private Student Loans Forgiveness or Cancellation Odds

During the 2020 election, Democratic candidates Bernie Sanders and Elizabeth Warren proposed student loan plans that included forgiving private loans.

While the Democratic party trend has been towards some form of debt elimination, cancellation of any type remains unlikely in the near future. If even some federal forgiveness is a long shot, private loan cancellation is even more unlikely.

Allowing student debt to continue to accumulate interest because of a glimmer of hope could be expensive. For most borrowers, it is a risky bet.

Balancing Other Goals with Debt Elimination

Borrowers with only federal loans can build a retirement fund and maximize forgiveness at the same time. Such a move becomes more difficult for borrowers with private loans as well.

The math gets complicated quickly, but this article provides a general guide for balancing these priorities.

Buying a house is another significant goal worth considering. Pursuing PSLF blends nicely with the strategies to qualify for a home loan, but private loans are a bit more complicated. Borrowers should pay special attention to their debt-to-income ratio when deciding which private loan to attack.

Matching the Private Loan and PSLF Timeline

Some borrowers want a target debt for debt freedom. Having a defined date may not maximize efficiency but is an excellent option if it helps borrowers stick to their goals.

PSLF provides a pretty clear ten-year timeline. As usual, things are a bit more complicated with private loans.

Borrowers can use a loan calculator to determine the exact monthly payments necessary to eliminate the loans in ten years.

Another alternative would be to refinance the private loans on a ten-year term. Interest rates on a ten-year loan are higher than the rates on a five-year loan. However, the monthly payments will be lower, and the PSLF and private student loan schedules will line up.

At present, the best 10-year fixed-rate loans are with the following lenders:

Rank	Lender	Lowest Rate	Sherpa Review
1		5.81%*	Splash Financial Review
2		NA	SoFi Review
3		6.09%	ELFI Review

The post Private Student Loans and Public Service Loan Forgiveness (PSLF) appeared first on The Student Loan Sherpa.