While advocates are calling for any relief, even just forgiveness of principal balances already paid multiple times due to interest, Banks, who are reporting massive profits this week thanks to higher interest rates, are lobbying Congress to ignore calls for any student loan relief.
Banks are aggressively pursuing customers with refinancing offers because the federal student loan payment suspension and 0% interest period are set to end on August 31st, assuming Biden doesn’t extend it once more.
Banks are stressing the need to refinance now to prevent significantly higher interest rates in the fall due to a series of anticipated rises from a Federal Reserve combating inflation.
When a private lender pays off your current loans and provides new terms, this refinancing of student loans can lower your interest rate or monthly payments.
However, even if your monthly payments can be reduced, you’ll probably pay more in total interest over time. You will pay a price for such refinances in other ways as well, such as losing access to and eligibility for:
1) Programs for federal reimbursement. The Standard, Graduated, and Extended Repayment plans are included in this.
2) Any federal repayment arrangements that are based on income.
3) Initiatives like the Public Service Loan Forgiveness Program, which forgives loans of graduates who worked at least 10 years in the public sector.
4) Repayment safeguards including forbearance or deferment of student loan payments. You might be able to halt or cut your monthly payments for a while using both forbearance and deferment.
5) Some refinancing lenders, but not all, offer unemployment protection, enabling qualified borrowers to postpone monthly loan payments in the case of an unanticipated loss of employment.
While refinance lenders disclose the loss of these benefits upon refinancing, it’s almost always hidden in the small print of massive paragraphs most people fail to read.
43.4 million borrowers have federal student loan debt.
Over $1.606 trillion in federal student loan debt (mostly due to accrued interest), or 91.2% of total student loan debt, is still outstanding.
Long-term student loan interest rates typically range from 6% to 10%, depending on when the original loans were obtained and the borrower’s “creditworthiness” at the time.
Due to compound interest, many borrowers have realized they have paid two or three times the initial loan balance… and still owe half or more of the original principal.