Maybe the Democrats in the Senate don’t want student loan cancellation after all.

Here’s what you need to know.

Student loans

As Congress passed a $ 1.9 trillion stimulus bill with $ 1,400 stimulus checks, unemployment insurance and tax free student loan forgiveness, a group of Senate Democrats offered an alternative to canceling the student loan. US Senators Mark Warner (D-VA), Jon Tester (D-MT) and Angus King (I-ME) have proposed new legislation, The Coronavirus Emergency Student Loan Refinancing Act of 2021, to help you refinance student loans at a lower interest rate. Mostly, student loan cancellation means Congress would write off your student loan debt and you won’t have to pay it off. Refinancing a student loan means you would get a lower interest rate; while you would be saving money, you still have to pay off your student loans. Here is how the proposal refinancing student loans would work:

Undergraduate student loans

For undergraduate student loan borrowers with Federal Direct Stafford, Unsubsidized, PLUS and Consolidated student loans:

• Interest rate: 10-year US Treasury rate + 2.05%

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Graduate student loans

For graduate student loan borrowers with Federal Direct Stafford or Unsubsidized Loans:

• Interest rate: 10-year US Treasury rate + 3.60%

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PLUS Loans

For borrowers with PLUS loans:

• Interest rate: 10-year US Treasury rate + 4.60%

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Questions and Answers About Refinancing Student Loans

Can You Refinance Student Loans With The Federal Government?

No, currently you cannot refinance student loans through the federal government. This bill, if passed in Congress, would allow you to refinance federal student loans.

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What Are the Requirements for Refinancing Federal Student Loans with the Federal Government?

the latest statistics on student loan debt show that 45 million borrowers collectively owe $ 1.7 trillion in student loans. The legislation does not specify what the requirements would be for refinancing student loans through the federal government. That said, borrowers should be “in good standing” and meet eligibility criteria based on income or a debt-to-income ratio set by the US Department of Education. The law does not specify an income threshold or debt-to-income ratio.

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Can You Refinance Private Student Loans?

This bill only applies to federal student loans, including direct loans and FFELP loans. however, private student loan the debt would not be eligible for refinancing through the federal government.

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Would this student loan refinancing be automatic?

No, you will need to apply for student loan refinancing with the federal government.

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What is the yield on the 10-year Treasury?

Your new interest rate would be based on the lowest yield on the 10-year Treasury bill in the previous six months. Currently, the 10-year Treasury yield is 1.56%, but that may change (making your interest rate potentially higher or lower). Based on that return, here’s what your student loan interest rates would look like:

• Undergraduate student loans: 3.16%
• Loans to graduate students: 5.16%
• PLUS Loans: 6.16%

The interest rate on a federal student loan is not based on your underlying credit quality. This means that when you borrow student loans, everyone gets the same interest rate. So whether you have good or bad credit, you will get the same interest rate when you refinance student loans under this bill.

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Can You Still Refinance Student Loans With A Private Lender?

Yes, you can still refinance student loans with a private lender. If Congress passes this bill, it would be completely optional. You can always refinance your private and federal student loans with a private lender. The interest rates for refinancing a student loan with a private lender are currently close to an all-time low, starting at 1.9%.

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Will your student loans be canceled?

This student loan refinancing proposal does not explicitly mention the cancellation of the student loan. So, if Congress passes student loan refinancing, there’s still a possibility that Congress will pass student loan cancellation as well. In the new stimulus bill, the Senate passed a provision that makes the cancellation of student loans tax-exempt until December 31, 2025. This will be especially helpful to student loan borrowers with a repayment plan focused on income, which will owe no income tax. on student loan cancellation before the end of 2025. The provision would also help borrowers who get student loan cancellation if Congress or the President acts on student loan cancellation. (Here’s what the stimulus bill suggests about canceling student loans).

That said, you can consider this new student loan refinancing proposal as a alternative Moderate Democrats’ student loan cancellation proposal. While progressives like Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) want the cancellation of student loans by executive order, moderate Democrats may not support the cancellation of student loans. large-scale student loans. Congress also lowered the income threshold for stimulus checks, which could mean Congress could lower the income threshold for canceling a student loan too much. Refinancing student loans can be a potential compromise position. However, the downside is that you cannot refinance private student loan debt and the interest rates would be higher than what you could get, if approved, with a private lender. If you have a good credit rating and a stable income, for example, you might be better off refinancing your student loans with a private lender.

As you consider strategies for paying off student loans faster, here are some potential options for paying off student loans:

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Student loans: related reading

17 million people won’t get stimulus checks – expect the same for student loan cancellation

Student loan cancellation excluded from the new stimulus plan

Student loan cancellation less likely if stimulus checks are reduced

Bernie Sanders: Cancel Student Loans Without Republicans