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Can You Get Student Loan Forgiveness if You Refinance?

Can You Get Student Loan Forgiveness if You Refinance?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated August 29, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You can refinance federal student loans and private student loans, but the portion of your federal student debt that you refinance loses its eligibility for certain debt relief programs, including Public Service Loan Forgiveness and President Joe Biden’s forgiveness plan.Most federal student loan borrowers in 2022 may be eligible for up to $20,000 of student loan forgiveness if the Biden administration’s debt relief plan is allowed to move forward. The program faces a number of legal challenges, making it unclear whether Biden’s one-time loan forgiveness will happen.If you refinance a portion of your student debt, the refinanced portion would not be eligible for certain federal debt relief programs. A refinanced student loan, however, may be eligible for certain state-based forgiveness programs. Refinancing may not be right for you if you’re eligible for federal student loan forgiveness. The federal government offers income-driven repayment plans that may lead to loan forgiveness after 20 or 25 years. The U.S. Department of Education, meanwhile, is proposing a rule that would forgive loan balances after 10 years of payments for some borrowers with an IDR plan. Only federal student loans can be repaid under a federal income-driven repayment plan.Below we describe how student loan forgiveness works and highlight why you may not get federal student loan forgiveness if you refinance.

What is Student Loan Forgiveness?

Student loan forgiveness is when your loan servicer cancels some or all of your debt on an education loan. Another form of student loan forgiveness is when you receive loan repayment assistance from a private entity or state-based program. Some forms of student loan forgiveness may be considered taxable income at the state or federal level, but Biden’s broad loan forgiveness plan would not be treated as taxable income for federal income tax purposes.Federal student loan borrowers may have access to federal repayment plans or service programs that can lead to student loan forgiveness. Educators who teach in a low-income school, for example, may be eligible for up to $17,500 in federal student loan forgiveness under the Teacher Loan Forgiveness program.Public employees with federal student loan obligations may have access to the Public Service Loan Forgiveness program. The PSLF program can forgive the remaining balance on your federal student loans after you have made 120 qualifying monthly repayments as a public employee.Lenders of private student loans may reach a debt settlement agreement with delinquent borrowers. Debt settlement may involve debt forgiveness, which may qualify as taxable income in certain cases. Private lenders generally have no obligation to offer debt forgiveness on private student loans.Federal and private student loans, including refinanced student loans, may be eligible for student loan forgiveness at the state level.Recommended: Guide to State-Based Student Loan Forgiveness Programs

What is Student Loan Refinancing?

Student loan refinancing is an action that prepays some or all of your existing student debt and leaves you with a new education loan issued by a private lender. Refinancing might not be right for you if you’re eligible for student loan forgiveness. How student loan refinancing works is that borrowers submit an application with a private lender requesting a new loan agreement for refinancing student loan debt.Refinancing federal student loans can allow borrowers to replace their existing federal loans with the terms and conditions of a private loan agreement. Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit.Reviewing the pros and cons of refinancing can help you decide whether refinancing is right for you. One of the advantages of refinancing student loans is it may provide you with a lower interest rate. One of the big disadvantages of refinancing federal student loans with a private lender, however, is you’ll be forfeiting federal benefits on the amount you refinance. If you refinance some of your federal student debt, the refinanced portion would not be eligible for PSLF, Teacher Loan Forgiveness, or Biden one-time debt forgiveness. The refinanced portion would also be ineligible for a federal income-driven repayment plan. The difference between private and federal student loans is that federal student loans are provided exclusively by the U.S. Department of Education, whereas banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans.

Does Refinancing Disqualify You From Loan Forgiveness?

Refinancing does not necessarily disqualify you from loan forgiveness. If you refinance your student loans with a private lender and find yourself unable to repay the debt, you may ask the private lender for relief.As mentioned earlier, private lenders may reach a debt settlement agreement with delinquent borrowers. Debt settlement may involve debt forgiveness, which may qualify as taxable income in certain cases.Refinanced student loans may also be eligible for student loan repayment assistance programs offered by states or employers. Student loan refinancing does not necessarily disqualify you from being eligible for nonfederal student loan forgiveness.Recommended: Employer Student Loan Repayment

Refinancing Federal Student Loans

Borrowers may consider refinancing federal student loans. This means federal student loan borrowers may switch from a federal repayment plan to a private student loan refinancing payment plan.Refinancing federal student loans, however, means you’ll also lose access to federal repayment plans and certain programs that can lead to loan forgiveness. Members of the U.S. armed forces with federal student loan debt, for example, may forfeit military student loan forgiveness on the refinanced debt if they refinance some of their federal student debt.Several of the federal government’s student loan repayment plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Federal repayment plans cannot be used to repay private education loans.

Refinancing Private Student Loans

Refinancing private student loans is when borrowers replace their existing private loans with the terms and conditions of a new private loan agreement. Refinancing private student loans does not necessarily entitle you to any student loan forgiveness relief.You may ask your private lender for relief if you’ve refinanced your student loans and find yourself unable to repay the debt. As mentioned earlier, private lenders may reach a debt settlement agreement with delinquent borrowers.Debt settlement agreements may include debt forgiveness provisions, which may qualify as taxable income in some cases. This means forgiven student loans may carry income tax liabilities at the state or federal levels.

Is Refinancing the Right Choice For Me?

As mentioned earlier, refinancing may not be right for you if you’re eligible for federal student loan forgiveness. Refinancing might provide you with a lower interest rate, but refinancing may also leave you with fewer prospects for debt forgiveness.Private lenders can offer debt forgiveness as part of a debt settlement agreement but generally have no obligation to cancel a borrower’s debt. Federal student loan borrowers, meanwhile, may be entitled to federal relief under a federal repayment plan or program. The forgiveness program announced by President Biden would provide up to $10K in debt relief to federal student loan borrowers with annual incomes below $125,000 ($250,000 for married couples). Some borrowers may qualify for $20K in debt forgiveness under Biden’s plan if they’re Pell Grant recipients who meet the income threshold.Refinancing federal student loans may not be right for you if you qualify for Public Service Loan Forgiveness. The PSLF program can forgive the remaining balance on your federal student loans after you have made 120 qualifying monthly repayments as a public employee.Recommended: Will Biden’s One-Time Student Loan Forgiveness Happen?

Making Student Loan Payments

The federal government in March 2020 suspended student loan payments in response to the Covid-19 pandemic. After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on Dec. 31, 2022. Borrowers can make more than the minimum payment when paying off student loans.Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some private lenders may demand repayment from your estate.Some may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans.The average student loan debt across the United States is tens of thousands of dollars per borrower, according to the Education Data Initiative. Researchers from that group found the average federal student loan debt in 2021 stood at $36,510 per borrower, while private student loan debt averaged $54,921 per borrower.

The Takeaway

Student loan forgiveness is more commonly associated with federal student loans rather than private student loans. The federal government has a variety of programs and repayment plans that can lead to federal student loan forgiveness, including President Biden’s debt relief edict. Refinancing your student loans could provide some benefits, but private lenders may have no obligation to forgive your debt.Lantern by SoFi can help you compare student loan refinance rates. Refinancing might be right for you if you can lock in a lower interest rate.Explore your student loan refinancing options with Lantern.

Frequently Asked Questions

Are student loans automatically forgiven after 10 years?
At what point are student loans forgiven?
Can you defer student loans after refinancing?
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Photo credit: iStock/gorodenkoff
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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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