Here’s what’s happening in student loans this week.
Does this Biden Appointee Have the Power to Cancel Student Debt?
Richard Cordray, a close ally of Senator Elizabeth Warren who served as the first director of the federal Consumer Financial Protection Bureau during the Obama years, has been selected as the new head of federal student aid in the Biden administration, a post that will put him at the center of the swirling debate over forgiving student debt.
The issue is a tricky one for President Biden. Though he has endorsed canceling up to $10,000 per borrower through legislation, Mr. Biden has been pressured by some Democrats to forgive much more, and to sign an executive order making it happen if Congress fails to act.
But with his new position within the Education Department, the primary lender for higher education, Mr. Cordray might be able to relieve the president of that burden by canceling student debt administratively. Democratic leaders are pushing for up to $50,000 per borrower in debt relief.
It may be tempting to refinance your student loans for a lower payment. However, CNBC warns the short term relief may lead to long term suffering.
Refinancing your student loans is an effective way to simplify your finances by combing your various monthly payments into one new monthly bill with just one lender.
Those who qualify for refinancing are also able to shorten or lengthen their loan repayment term according to what works best for their finances, and they may score a lower interest rate to boot.
Sound too good to be true? For federal student loan borrowers specifically, there is a catch.
For borrowers who have loans that are owned by the U.S. Department of Education, the only option is to refinance through a private lender, like a big bank, credit union or online lender. The government does not offer refinancing options, just a Direct Consolidation Loan program.
Once a federal student loan borrower swaps in their loans for a refinanced loan through a private lender, however, they lose all of the federal loan protections they once had.
If you’re a federal student loan borrower, you need to be aware ahead of time what you will miss out on by moving over to a private company. These unique governmental protections set in place for federal borrowers offer peace of mind you may not be willing to give up — most notably the federal student loan freeze that’s in place freeze through September 2021 and a current interest rate of 0%.
Student Loans to be Frozen Past October?
Finally, your student loan payments are set to resume in October. However, the COVID freeze on paying student loans could extend further into 2021.
In one of his first actions in office, President Joe Biden extended the freeze on student-loan payments through September 30. Education Secretary Miguel Cardona said on Monday that the department was looking at whether to resume payments and interest come October.
"Obviously we're going to always take the lead from what the data is telling us and where we are as a country with regards to the recovery of the pandemic," Cardona said during an Education Writers Association conference. "It's not out of the question, but at this point it's September 30."
He added that with the repayment process, the department would have to work with borrowers "to make sure that we ramp up the communication and the clarity so that it's smooth as possible."
"We know that that's something we're going to be focusing on as it gets closer," Cardona said.
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