For years, many student loan borrowers have suffered under the weight of excessive debt.
Millions more may never experience that kind of debt cancellation.
Although federal student loan borrowers have the option to pause their monthly bills without interest until May 1, federal student loan forgiveness on a broader scale is looking less likely since it was left out of Democrats’ Build Back Better agenda.
There are, however, other ways to get a break, although they may come with a catch.
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For starters, borrowers can take advantage of the payment pause, for now, and consider whether to consolidate or refinance their outstanding loans.
If you have several different loans, consolidating could help streamline and simplify your payment into one monthly bill.
You could also choose to extend the terms beyond the standard 10 years to lower your monthly payments. Although, if you extend the term of the loan, you ultimately will pay more interest on the balance.
However, if you’re under an income-driven repayment plan, or if you’ve made payments toward public service loan forgiveness, consolidating your current loans could cause you to lose credit toward those programs.
The Biden administration has relaxed the rules around public service loan forgiveness with a limited waiver, which means some of your past payments may now count toward loan forgiveness. This temporary waiver entitles more borrowers to the cancellation, but must be completed by Oct. 31, 2022.
Otherwise, you could refinance your student loans at a lower interest rate to decrease your debt load.
“If you have private loans, nothing should stop you from refinancing if you find a lower rate,” said higher education expert Mark Kantrowitz. “You just want to be careful not to refinance into a variable rate because those have nowhere to go but up,” he added.
Private loans may be fixed or may have a variable rate tied to Libor, prime or T-bill rates, which means that when the Federal Reserve starts to raise rates from essentially zero, borrowers with private loans will pay more in interest, although how much more will vary by the benchmark and the terms of the loan.
“With the Fed about to raise rates, you definitely want to stay in a fixed-rate loan,” said Mary Jo Terry, a managing partner at Yrefy, a private student loan refinancing company.
You also want to be careful not to refinance a federal loan into a private one, which would mean losing out on any federal loan forgiveness — if it is ultimately enacted by Congress.
Refinancing to a private loan would also forgo the safety nets that come with a federal loan, including income-based repayment programs, for those who would qualify.
To see if that applies, go to the Department of Education’s central database for student aid to check the terms for your loans and all the federal programs available to you.
There’s even a loan simulator, which helps you calculate student loan payments and choose the repayment option that is best.