President Joe Biden has made some promises about student loan forgiveness in 2021.
For example, Biden has promised that the federal government will forgive $10,000 in student loan debt for qualifying borrowers with federal student loans.
While that’s big news for college graduates and parents, it may not solve all of your problems if you have a high student loan balance.
In fact, it may still be worth refinancing a portion of your student loans to a lower rate – while saving $10,000 to be cancelled – so you can get the best of both worlds.
Joe Biden on student loan debt cancellation
The student loan crisis has become more and more important to politicians over the last few years, especially in the Democratic party.
President Joe Biden currently plans to forgive $10,000 in student loan debt for all eligible federal student loan borrowers as part of a coronavirus relief package.
In addition to that, Biden has proposed forgiving all undergraduate student loan debt for people who earn less than $125,000 and attended a public college or university, a historically Black college or university, or a minority-serving institution.
While no laws have been passed on either measure, the Democrat party now controls both legislative bodies in Congress, which increases the chances of at least some form of student loan forgiveness in 2021 and beyond.
Why student loan refinancing may still be worth it
Although student loan forgiveness is better than refinancing, the plans from Joe Biden on student loans cancellation may not be enough to eliminate all of what you owe.
As a result, it may be worth it to refinance at least a portion of your debt, leaving only what qualifies for cancellation from the U.S. Department of Education.
The primary reason to consider refinancing is that interest rates are at historic lows. In other words, regardless of how low your federal student loan interest rates are, you could get a better offer through a private lender.
With a lower interest rate, you could save money on your monthly payment, as well as on your total interest charges over the life of your loan.
Remember, also, that private student loans do not qualify for federal student loan forgiveness in 2021 because the debt is not held by the U.S. Department of Education.
So any portion of your private student loan balance that you choose to refinance wouldn’t be eligible for cancellation anyway.
So take some time to research the proposals that are on the table. For starters, the $10,000 covid relief proposal isn’t limited to undergraduate debt and is available for all borrowers with eligible federal loans. The other proposal, however, is more limited in terms of eligibility. If you determine that you qualify for both, keep your federal loans where they are to maximize your forgiveness.
But if you only qualify for the $10,000 proposal, try to refinance enough to keep that leftover to be cancelled.
Keep in mind, too, that student loan refinancing can be difficult to qualify for, especially for the lenders’ lowest interest rates. If you can’t get affordable financing on your own, you may opt to apply with a cosigner, which could help boost your chances of saving money.
How to compare student loan refinance rates
While student loan refinancing rates are lower than they’ve ever been, you’ll still want to shop around and compare rates from multiple lenders before you apply. Each lender has its own set of interest rates and criteria for the rate each borrower receives.
The good news is that student loan refinancing companies allow you to get prequalified before you apply. This requires just a soft credit check (which doesn’t hurt your credit score) and gives you an idea of what you might qualify for but doesn’t guarantee approval.
The bad news is that going through this process with each lender can be time-consuming. To speed up the process, you can use Purefy’s rate comparison tool.
The process is the same — provide a little information about yourself and your student loans and agree to a soft credit check — but you’ll be able to view loan offers from multiple lenders side by side.
As you compare your options, it’s important to note that there are two types of interest rates you might see: fixed and variable.
Fixed interest rates are what the Department of Education offers (and most private lenders, for that matter). Your interest rate stays the same throughout the life of your loan, giving you more certainty about what you owe.
Variable rates, on the other hand, can fluctuate over time based on the current market rates. Because the borrower is taking on more risk with variable interest rates, lenders compensate them by offering lower rates than the loans with fixed rates.
That said, variable rates may not make sense unless you plan to pay off the debt quickly and won’t be affected much by the changes over time.
Regardless of which option you choose, it’s important to make sure you’re comparing apples to apples when trying to find the right lender.
The bottom line
With the Biden administration, student loan borrowers are poised to get some relief through various proposals from Joe Biden on student loans over the next year. If you’re considering refinancing your student loans, read up on whether you might be eligible for forgiveness and how much you can receive.
If it’s not enough to cover your full debt, refinancing may be a good way to save money on interest on the portion that doesn’t qualify for cancellation.
As you consider this option, though, make sure you shop around and compare loan offers before you settle on one.
Also, make sure you don’t need any other benefits that the federal government provides to student loan borrowers, such as income-driven repayment plans and generous forbearance and deferment options.
The important thing is that you take the time to understand your situation and your options and take proactive steps to tackle your student loan debt by paying it off early and saving money on interest in the process.