The most recent version of the American Rescue Plan includes tax-free student loan forgiveness through 2025. My federal loans are currently held with the Dept of Education and serviced through one of their servicers. My question is this: if I refinance with a private company will all the interest that has accrued but not capitalized on my federal loans be forgiven? By refinancing a company would essentially be paying off my debt and assuming it at a different interest rate.
jarvvy
Mar 9, 21 1:29 pm
Or does accrued interest just get capitalized when you "leave" the program through refinancing? Say my principal was $10,000 (I wish it was) and I have an accrued interest of $1,000. When I refinance does my principal just become $11,000?
b3tadine[sutures]
Mar 9, 21 1:39 pm
I imagine that you've given this a lot of thought, and have come to the realization that asking a question regarding your personal circumstances, on an anonymous website, is rife with problems, and have decided to speak with your lender? Or am I reaching?
jarvvy
Mar 9, 21 2:59 pm
In my experiences the only experts in this area are those loan holders that make themselves the experts and a select few financial advisors who specialize in this area specifically. I have gotten more misinformation from representatives of different lenders and/or servicers than I thought possible. My question, in theory, applies to anyone that has student loans with the Dept of Education and any amount of accrued interest and is thinking about refinancing.
Chad Miller
Mar 9, 21 6:02 pm
Then ask the question on a financial advisor form. Better yet hire a fiduciary.
square.
Mar 9, 21 2:43 pm
i'll bite.
i think this is for potential student loan forgiveness that might happen before 2025. currently, if you are in the federal program that forgives debt after 20 years of payment, or 10 years in public service, you must pay income tax on the remaining amount.
sounds like this might be altered in the current bill. seems like it will more likely apply to any potential federal forgiveness that is also floating around (currently 10k-50k).
long story short, you should not consolidate with a private company. none of this will apply to you anymore, including things like pause on payments and interest.
there's a reason vulturistic private companies are offering very low interest rates right now- they want people like you to consolidate and no longer be eligible for federal loan forgiveness.
also- call your current servicer. i think they might be able to answer the specifics of you question......
jarvvy
Mar 9, 21 3:03 pm
Your point is well taken. There are many benefits/protections with federal loans including potential (partial) federal loan forgiveness. However, one important benefit that does not apply is the ability to refinance which would have a very significant on the ability to pay down a loan.
FYI, I believe that currently after 10 years of public service a borrower does not have to pay income tax on the forgiven amount.
square.
Mar 9, 21 4:36 pm
what is the interest rate offer? is it better than the current federal rate of 0? which could continue for the next few years?
square.
Mar 9, 21 4:38 pm
and yes, they do. my friend is in the program.
thisisnotmyname
Mar 9, 21 3:32 pm
If I were you, I would pay all interest as it accrues monthly and take the yearly federal income tax deduction for that money. Capitalized interest can become an expensive time bomb. I would also stay with the Dept. of Ed. and their servicer for the next year or so until it becomes clear if any kind of forgiveness is going to be implemented by the Biden administration. I think Education Department will be much easier to deal with than a new loan holder if a forgiveness program happens.
natematt
Mar 9, 21 4:28 pm
I'd almost be willing to take out another loan to make a bet that this is all hypothetical and that none of our loans ever get forgiven....
square.
Mar 9, 21 4:37 pm
there's still a possibility of some modest amount of relief.. but it's very annoying that it's essentially a guessing game right now.
SneakyPete
Mar 9, 21 4:53 pm
From what I have been reading the amount of people who will be eligible for forgiveness is few, as you'll need to hit your target for forgiveness by 2025 via income contingent plans. So unless you started decades ago, you're out of luck. Sounds good when selling the plan with no real heavy hitting relief, as per usual.
b3tadine[sutures]
Mar 9, 21 7:49 pm
I think this law was written for me.
Peter Normand
Mar 11, 21 4:08 pm
My understanding of the Biden proposal to forgive up to $10,000 in student debt is this will cover principal and or interest with federal loans. The big caveat that it took me some time to figure out and confirm is the proposed student loan debt forgiveness does not include loans for graduate tuition/ education, this is true of the $10,000 proposal and the $50,0000 proposal Championed by Senators Warren and Sanders.
I would if your debt service provider allows it, try pay off the loans for graduate tuition first.
The un-capitalized interest is going to have to be paid and will either become part of the principal of the consolidated loan or you will need to pay that to settle your account with the department of education.
As for interest rates, if you consider what student loans are, unsecured debt where there is no asset the bank can take back if you default, the interest rates of 2-6% are typically much better than the other forms of unsecured debt such as credit cards. I don't think if you consolidate loans you are guaranteed to save on interest because the banks doing the consolidations trick you into a much longer loan pay back period and they market this with lower monthly payments but if you don't pay off the principal as fast as possible you end up losing money to interest payments. If you stuck with a shorter loan term that would mean bigger monthly payments, in the long run you pay less interest to the banks and you might have more money in the end.
Do the math, figure out if consolidation will cost more for the life of the loans. Also investigate the possibility of targeted repayments of higher interest loans first or smaller loans first. Also you do not have to consolidate all of your loans.
The most recent version of the American Rescue Plan includes tax-free student loan forgiveness through 2025. My federal loans are currently held with the Dept of Education and serviced through one of their servicers. My question is this: if I refinance with a private company will all the interest that has accrued but not capitalized on my federal loans be forgiven? By refinancing a company would essentially be paying off my debt and assuming it at a different interest rate.
Or does accrued interest just get capitalized when you "leave" the program through refinancing? Say my principal was $10,000 (I wish it was) and I have an accrued interest of $1,000. When I refinance does my principal just become $11,000?
I imagine that you've given this a lot of thought, and have come to the realization that asking a question regarding your personal circumstances, on an anonymous website, is rife with problems, and have decided to speak with your lender? Or am I reaching?
In my experiences the only experts in this area are those loan holders that make themselves the experts and a select few financial advisors who specialize in this area specifically. I have gotten more misinformation from representatives of different lenders and/or servicers than I thought possible. My question, in theory, applies to anyone that has student loans with the Dept of Education and any amount of accrued interest and is thinking about refinancing.
Then ask the question on a financial advisor form. Better yet hire a fiduciary.
i'll bite.
i think this is for potential student loan forgiveness that might happen before 2025. currently, if you are in the federal program that forgives debt after 20 years of payment, or 10 years in public service, you must pay income tax on the remaining amount.
sounds like this might be altered in the current bill. seems like it will more likely apply to any potential federal forgiveness that is also floating around (currently 10k-50k).
long story short, you should not consolidate with a private company. none of this will apply to you anymore, including things like pause on payments and interest.
there's a reason vulturistic private companies are offering very low interest rates right now- they want people like you to consolidate and no longer be eligible for federal loan forgiveness.
also- call your current servicer. i think they might be able to answer the specifics of you question......
Your point is well taken. There are many benefits/protections with federal loans including potential (partial) federal loan forgiveness. However, one important benefit that does not apply is the ability to refinance which would have a very significant on the ability to pay down a loan.
FYI, I believe that currently after 10 years of public service a borrower does not have to pay income tax on the forgiven amount.
what is the interest rate offer? is it better than the current federal rate of 0? which could continue for the next few years?
and yes, they do. my friend is in the program.
If I were you, I would pay all interest as it accrues monthly and take the yearly federal income tax deduction for that money. Capitalized interest can become an expensive time bomb. I would also stay with the Dept. of Ed. and their servicer for the next year or so until it becomes clear if any kind of forgiveness is going to be implemented by the Biden administration. I think Education Department will be much easier to deal with than a new loan holder if a forgiveness program happens.
I'd almost be willing to take out another loan to make a bet that this is all hypothetical and that none of our loans ever get forgiven....
there's still a possibility of some modest amount of relief.. but it's very annoying that it's essentially a guessing game right now.
From what I have been reading the amount of people who will be eligible for forgiveness is few, as you'll need to hit your target for forgiveness by 2025 via income contingent plans. So unless you started decades ago, you're out of luck. Sounds good when selling the plan with no real heavy hitting relief, as per usual.
I think this law was written for me.
My understanding of the Biden proposal to forgive up to $10,000 in student debt is this will cover principal and or interest with federal loans. The big caveat that it took me some time to figure out and confirm is the proposed student loan debt forgiveness does not include loans for graduate tuition/ education, this is true of the $10,000 proposal and the $50,0000 proposal Championed by Senators Warren and Sanders.
I would if your debt service provider allows it, try pay off the loans for graduate tuition first.
The un-capitalized interest is going to have to be paid and will either become part of the principal of the consolidated loan or you will need to pay that to settle your account with the department of education.
As for interest rates, if you consider what student loans are, unsecured debt where there is no asset the bank can take back if you default, the interest rates of 2-6% are typically much better than the other forms of unsecured debt such as credit cards. I don't think if you consolidate loans you are guaranteed to save on interest because the banks doing the consolidations trick you into a much longer loan pay back period and they market this with lower monthly payments but if you don't pay off the principal as fast as possible you end up losing money to interest payments. If you stuck with a shorter loan term that would mean bigger monthly payments, in the long run you pay less interest to the banks and you might have more money in the end.
Do the math, figure out if consolidation will cost more for the life of the loans. Also investigate the possibility of targeted repayments of higher interest loans first or smaller loans first. Also you do not have to consolidate all of your loans.
Hope this helps
Over and OUT
Peter N