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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-Rahman

Updated June 14, 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.
Refinancing may not be right for you if you’re interested in student loan forgiveness. The federal government offers income-driven repayment plans that may lead to loan forgiveness after 20 or 25 years. An income-driven repayment plan is not available to borrowers who refinance student loans.Public employees with federal student loan obligations may have access to the Public Service Loan Forgiveness program. The PSLF program is not available to borrowers who refinance student loans.Teachers with federal student loan debt may qualify for the Teacher Loan Forgiveness program. This loan forgiveness program, however, is not available to educators who refinance their federal student loans. Below we describe how student loan forgiveness works and highlight why you may not get 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. Some forms of student loan forgiveness may be considered taxable income at the state or federal level.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.As mentioned earlier, public employees with federal student loan obligations may have access to the Public Service Loan Forgiveness program. These borrowers may also have access to an income-driven repayment option that may lead to student loan forgiveness.Refinancing might not be right for you if you’re interested in 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 student loans with a private lender, however, is you’ll be forfeiting federal benefits. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government.The difference between private and federal student loans is that federal student loans are provided exclusively by the U.S. Department of Education. 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 and find yourself unable to repay the debt, you may ask your private lender for relief.Private lenders in some cases may reach a debt settlement agreement with delinquent borrowers. Debt settlement may involve debt forgiveness, which may qualify as taxable income in certain cases.

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 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 if they refinance.Various elected officials have talked about broad student loan forgiveness of federal student loans. 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 are not available to borrowers who refinance their federal student 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 in some cases may reach a debt settlement agreement with delinquent borrowers.Debt settlement agreements may include partial debt forgiveness, 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 interested in student loan forgiveness. Refinancing might provide you with a lower interest rate, but refinancing may also leave you with little prospects for debt forgiveness.Private lenders can offer debt forgiveness as part of a debt settlement agreement but may 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. Federal relief programs are not available to borrowers who refinance their federal student loans. 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. Borrowers who refinance their federal student loans may also forgo other federal benefits.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 August 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 EducationData.org 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 U.S. Department of Education has a variety of programs and repayment plans that can lead to federal student loan forgiveness. 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 options if you’re interested in refinancing student loans. Refinancing might be right for you if you can lock in a lower interest rate. Explore your options today and consider applying with a lender of your choice.
Photo credit: iStock/gorodenkoff
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Frequently Asked Questions

Are student loans automatically forgiven after 10 years?
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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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