The Consumer Financial Protection Bureau (CFPB) has flagged deceptive marketing practices by some private lenders regarding federal student loan refinancing. The CFPB warns that borrowers who refinance lose access to federal loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness (TLF), as well as one-off forgiveness efforts like President Biden's Plan B.
With the Federal Reserve's recent cuts to interest rates, more federal student loan borrowers are wondering if they should refinance.
Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.published Monday, the CFPB said that private lenders use "deceptive" practices in their marketing and disclosure materials, misleading student borrowers about a key pitfall of refinancing: Those who do so lose access to federal student loan forgiveness options.
PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments. Under TLF, those who teach full-time for five consecutive academic years in a low-income school or educational service agency can be eligible for loan forgiveness of up to $17,500. These options are not available to private student loan borrowers.
IDR plans allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period."The lenders profited from borrowers paying the full amount of their loans, when the borrowers otherwise potentially could have had some or all of those loans forgiven," the bureau wrote in its report.
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