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In early April, President Biden asked the US Department of Education if his executive branch gave him the ability to adopt a massive student loan discount without the approval of Congress.
While this signaled to many borrowers a promising next step towards student loan cancellation, it is still unclear exactly how it might play out. While blanket student loan cancellation is an option, we still don’t know when it would happen, how much debt would be canceled, and exactly who would qualify.
One thing we do know: The Biden administration is unlikely to be able to cancel private loans.
Student loan cancellation discussed by Biden administration – and cancellation Democrats Chuck Schumer and Elizabeth Warren offers – only applies to those with federal student loans. These are borrowers who have taken out student loans owned by the US Department of Education.
Private student loan borrowers, on the other hand, are those who take out loans owned by private companies, such as online lenders or national banks. Although the majority of student loan borrowers – about 92% – hold federal loans, private student loans still constitute 7.71% of $ 1.71 trillion total student debt outstanding in the United States
What private student loan borrowers should do
While private borrowers can’t rely on drastic student loan cancellation to pay off their debt, there are steps they can take to make their loans more manageable. Refinancing for a lower interest rate is certainly not as good as canceling your loans entirely, but it’s a smart financial decision that will pay off the sooner you choose to do so.
When private student loan borrowers refinance, they swap their current private student loan (s) for a new loan. This can be from their same lender (if offered) or another lender of their choice.
With rates at historic lows, now is the time for private student loan borrowers to consider refinancing before rebounding. As Covid restrictions ease and the economy improves over time, the Fed will raise rates again and refinancing might not be as cheap. And if your credit score is better than when you applied for your private student loan, you have a better chance of qualifying for a low rate.
Use a loan market like Credible to compare lenders or take a look at Select’s top picks. You are likely to realize the most savings from refinancing when you choose a lender that offers competitive interest rates, no administration or origination fees, and no prepayment penalties, which all of our selections do.
Here are our top student loan refinancing companies:
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.