Don’t Wait for News From Biden: Take Charge of Student Loans Now

Kat Tretina

Since President Joe Biden was elected, people have been anxiously awaiting news about the possibility of student loan forgiveness in 2021. While Biden is likely to make some changes to benefit federal loan borrowers, it could take some time before those changes take place.

Instead of waiting for loan forgiveness or other initiatives to occur, here’s what you can do now to manage your loans more effectively.

President Joe Biden on student loans: What are his plans?

During his campaign, President Biden made it clear that he plans to offer relief to student loan borrowers through partial loan forgiveness. But what that relief will look like is still up for debate.

Some Democrats differ from Joe Biden on student loan debt and are lobbying for $50,000 in student loan forgiveness in 2021.

However, Biden has said he won’t push for $50,000 in forgiveness and will instead support a plan to cancel just $10,000 in federal student loans for each borrower.

Biden said he won’t use executive action to issue loan forgiveness and will go through Congress instead. Since there is some opposition to the idea of canceling any student loans, it could be a lengthy process before the government passes any loan forgiveness measures.

What to do until student loan forgiveness occurs in 2021

Assuming that Biden’s position on student loans doesn’t change in the near future, it could still be months before there is any progress for loan forgiveness measures. In the meantime, this is what you can do to manage your loans more effectively:

1. Take advantage of the CARES Act interest waiver

President Biden extended the CARES Act’s relief measures until September 2021. Until the end of September, the interest rate on all outstanding federal Direct loans is set at 0%, and loan payments are suspended.

If you have federal Direct loans, now is an excellent opportunity to accelerate your repayment. If you can afford to make payments right now — even though payments aren’t required — you can chip away at your loan principal faster since the loans aren’t accruing interest. That will help you pay off your debt more quickly and save money on interest charges once the CARES Act expires.

2. Make extra payments toward your private student loans

Another strategy you can use while the CARES Act is in effect is using your money to target certain accounts. If you have both federal and private student loans, your federal loan payments are currently suspended. If you’re still working and have income coming in, you can use the money that would normally go toward your federal loan payments and instead pay extra toward your private loans.

Private student loans tend to have higher interest rates and fewer benefits than federal loans, and private student loans aren’t eligible for the CARES Act benefits or student loan forgiveness programs. Since your federal loans currently have a 0% interest rate, targeting your private loans makes sense and can be an effective way to save money and speed up your debt repayment.

3. Accelerate repayment (but don’t pay off all of it)

Currently, it looks like President Biden will push for $10,000 in federal loan forgiveness. Seeing as the average student loan borrower has nearly $30,000 in student loan debt, student loan forgiveness will likely cancel only a portion of your debt.

If you can afford to continue making payments through September, it’s a smart strategy to reduce your loan principal. However, it’s a good idea to stop making extra payments once you reach a $10,000 balance so that you can qualify for the full amount of loan forgiveness once it passes.

4. Consider student loan refinancing

If you have private student loans or high-interest federal loans — such as Grad PLUS Loans or Parent PLUS Loans — now is a great time to refinance your student loans due to lenders offering historically low rates.

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Refinancing is a method for managing your loans where you apply for a loan from a private lender for some or all of your current student loans. Since refinancing loans are based on your credit, income, and selected loan term, it allows you to potentially lower your interest rate, change your repayment term, and even lower your monthly payment.

The savings can be significant. For example, let’s say you had $30,000 in Grad PLUS Loans at 7.08% interest and a 10-year repayment term. By the time you paid off your loans, you will pay nearly $12,000 in interest charges.

But say you refinanced your loans and opted for a shorter loan term. If you selected an eight-year term and qualified for a 5% rate, you will pay just $6,461 in interest. Refinancing your loans would allow you to save over $5,400, and it takes just a few minutes to refinance your student loans.

 Original LoanRefinanced Loan
Loan Term10 Years8 Years
Interest Rate7.08%5%
Minimum Payment$350$380
Total Interest$11,948$6,461
Total Paid$41,948$36,461
Savings: $5,487

Worried about missing out on the projected $10,000 in student loan forgiveness expected in 2021? You don’t have to refinance all of your existing loans; you can refinance only some of them. For example, you can decide to refinance only your private student loans or refinance all but $10,000 of your federal student loans. By leaving that $10,000 in federal loans untouched, you keep them as federal loans and will still be eligible for student loan cancellation.

If you decide to refinance your loans, make sure you compare rates and loan terms from top lenders. Purefy’s Compare Rates tool simplifies the process, giving you multiple quotes without affecting your credit score.

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ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 01/01/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.72% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.39% APR to 9.19% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

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ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 6.94% to 11.58% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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