President Joe Biden’s student loan forgiveness plan, announced Aug. 24, could reduce the loan balances of millions of people by up to $20,000. But the discount only applies to loans held by the federal government. For borrowers who previously refinanced their federal loans into a private loan, the forgiveness is likely out of the question, according to lending experts.
Robert Farrington, CEO of The university investor, says that, simply put, when you refinance your student loan, you are replacing your federal loan with a private loan. “Private lending belongs to banks and lenders, and the government has no control over the terms and conditions of the loan,” he says. “Programs such as loan forgiveness are only available for government-held loans.”
Read more: Biden’s student loan plan wipes 20 million Americans out of debt, but leaves millions behind
Why do borrowers refinance their loans?
Ironically, while borrowers who refinanced their loans are now denied loan forgiveness, many did so in the first place to relieve financial stress.
Refinancing federal student loans can be an attractive option for borrowers who are having financial difficulty trying to pay off their debt. It allows borrowers to combine their monthly payments into one new monthly bill with a single lender, shorten or lengthen their loan repayment term and, often most importantly, get an interest rate below that provided by the government.
According to financial aid expert Mark Kantrowitz, the most common reason for refinancing student loans is to save money. “If you borrowed your federal student loans several years ago, the interest rates were much higher than they are now,” he says. “Even with the Federal Reserve raising interest rates [this year]interest rates on private student loans are still lower than federal loans several years ago.
Federal student loan borrowers may have chosen to refinance through a private lender such as a bank, credit union, or online lender.
Activists hold student debt cancellation signs as they gather to rally outside the White House in Washington DC, August 25, 2022.
Stefani Reynolds—AFP/Getty Images
What’s the catch with refinancing?
When borrowers decided to refinance their student loans through a private lender, they lost any federal loan protections they previously held, Farrington says. These protections include deferment or forbearance options, income-based repayment plans, and loan forgiveness. Borrowers who refinanced their loans before the pandemic, for example, were not eligible to take advantage of the current pause on federal student loan repayments and the 0% federal interest rate.
Farrington says that while many refinance lenders put disclaimers on their sites highlighting the federal lending pause, they also continued to advertise and promote refinance throughout the pandemic.
As noted by the Rockefeller Institute of Government, the public policy research arm of the State University of New York, in a 2019 blog postit can be easy for borrowers to be lured into aggressive refinance advertising campaigns that obscure the realities of the arrangement.
“These are not voluntary services, but lucrative ventures for these companies, and their offerings may not always be in the best interests of student borrowers,” the Institute wrote.
Now, those who chose to refinance will not be eligible for Biden’s widespread cancellation.
“Too many federal student loan borrowers cling to their interest rate and dismiss the value of all federal options,” Farrington says.
What relief options exist for private borrowers?
There are no general loan cancellation options for private borrowers.
However, some private lenders offer their own protections, although they are generally not as extensive as those offered to federal borrowers. Kantrowitz says private borrowers looking for relief should start by contacting their lender and asking about their options.
One protection that may still be available to private borrowers is a short-term forbearance or suspension of their repayment obligation. “Typically, these are offered in increments of two to three months, with a maximum total of one year,” says Kantrowitz.
Private borrowers may also have the option of partial forbearance, which would allow them to suspend payments on the principal balance of a loan while paying off new interest that accrues. “The downside is that you’re still making a payment,” Kantrowitz says. “But the advantage is that it prevents the loan from getting bigger.”
More Must-Try Stories from TIME