Are refinanced student loans eligible for forgiveness? (2024)

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• The Supreme Court is reviewing the legality of Biden's student loan forgiveness plan.
• The proposal axes up to $20,000 in debt per Pell Grant recipient and up to $10,000 per non-recipient.
• Borrowers who have refinanced federal loans into private loans are ineligible for forgiveness.

Refinancing a student loan can help lower your interest rate and reduce your monthly payments. But if your loans are backed by the federal government, that monthly savings may come at a great cost.

When you refinance a federal student loan, you replace it with a private loan — and lose access to a handful of benefits, including any type of governmental loan forgiveness.

See Insider's picks for the best student loan refinance lenders >>

What is Biden's student loan forgiveness plan?

In mid-2022, the Biden administration introduced a plan to forgive up to $20,000 in student loan debt for recipients of Pell Grants and up to $10,000 for other federal borrowers. To qualify, single tax filers must have adjusted gross income for 2020 or 2021 under $125,000, while married joint filers must have AGI under $250,000.

A Pell Grant is a type of aid awarded to undergraduates with exceptional financial need that does not need to be repaid. Pell Grant recipients make up more than 60% of federal student loan borrowers.

While President Biden's debt relief plan would cancel some level of debt for 43 million borrowers, according to the administration, it has faced numerous legal challenges. In November, the Education Department stopped accepting applications for loan forgiveness. The US Supreme Court is reviewing the legality of the plan.

Meanwhile, interest on all federal student loans is set to resume September 1, 2023 and payments will restart a month later, according to an Education Department spokesperson.

Are refinanced student loans eligible for forgiveness?

Federal student loans you've refinanced are not eligible for forgiveness under Biden's debt relief plan.

That's because the federal government doesn't oversee a refinancing program.

"When federal student loans are refinanced, a private lender essentially pays them off, and a new private loan is established," says Andrew Latham, a certified financial planner and content director at SuperMoney.com. Instead of repaying the Department of Education, you begin repaying a private lender, he says.

While refinancing can sometimes result in a lower interest rate or a shorter repayment term, it cuts off the borrower's access to government benefits like loan forgiveness, forbearance, emergency relief, and income-driven repayment.

Federal consolidation loans, on the other hand, are eligible for forgiveness under Biden's proposed plan, as long as the underlying loans were Education Department-held loans or FFEL or Perkins loans not ED-held and the lender disbursed them before June 30, 2022.

Types of student loans that are eligible for forgiveness

The Education Department maintains a list of eligible student loans on its website, which includes the following:

• Federal Direct Loans — subsidized, unsubsidized, PLUS loans, and consolidation loans
• Federal Family Education Loan (FFEL) Program loans (ended in 2010)
• Federal Perkins Loan Program loans (ended in 2017)
• Education Department-held defaulted loans

All loans funds must have been received on or before June 30, 2022.

What to do if you don't qualify for student loan forgiveness

If you don't qualify for forgiveness under Biden's proposed plan, you may still have options for canceling your debt or creating a more flexible repayment schedule.

"It's not a dead end for those who have refinanced their federal loans or don't qualify for federal forgiveness due to high income," Latham says.

If your debt is held by a private lender, you may be able to negotiate a repayment term or interest rate change, or see if you qualify for deferment due to financial hardship. Options vary by lender.

If your loans are still held by the federal government, you may be eligible for an income-driven repayment plan. While this won't cancel your debt, it allows you to adjust your monthly payment based on your income and family size. You can also look into a federal consolidation loan to combine your federal student debt into one monthly payment.Federal borrowers who have Direct Loans and are, or were previously, employed by a government or not-for-profit organization can look into the Public Service Loan Forgiveness Program (PSLF). You can become eligible for debt cancellation after you make 120 qualifying monthly payments.