How likely is it that my student loans will be forgiven anyway?
President Joe Biden supports forgiving up to $10,000 in federal student loan debt per borrower. The more radical Warren-Schumer proposal calls for forgiving up to $50,000 in federal student loan debt.
Just because there’s hope that you might see some student loans wiped out by Washington, though, isn’t a good reason to endlessly borrow money now to go to college.
«It’s not necessarily a sound financial strategy to be basing your life’s financial decisions on different posturing by folks in Washington,» Humann said.
We don’t know what will really happen. And borrowers need to remember that private student loans — which did not get relief during the pandemic through the CARES Act — face very high odds against seeing loan forgiveness down the road.
Should I opt for a private student loan instead of a federal student loan?
Second, you want to max out all that’s available to borrow when it comes to federal student loans. Federal student loan rates are low and you may later qualify for some benefits, such as income-driven repayment plans and some loan forgiveness programs.
Kantrowitz noted that even Parent PLUS loans are eligible for some federal student loan forgiveness programs, such as public service loan forgiveness, but not teacher loan forgiveness. Parent PLUS loans are also eligible for death and disability discharges.
Some borrowers, Humann said, may want to take advantage of extremely low rates on private student loans instead of turning to higher rate Parent PLUS loans to fill the gap.
But you’d need to compare what rates are available to you, determine whether the rate is variable and could go higher or if the low rate is fixed. You’d also need to find out if you’d need a co-signer like a parent to get a better rate. On co-signed loans, the co-signer’s credit score is used if higher than the borrower’s score.
Private student loans often take one’s credit score into consideration; rates for Parent PLUS loans are not risk-based pricing and everyone pays a fixed rate of 6.28% for PLUS Loans taken out from .
Private student loan rates will vary significantly, based on one’s credit. Some variable rates range from 1.04% to around 13%.
According to Credible’s data, a borrower with a high credit score of 780 and above could be looking at a 10-year fixed private student loan rate of 5.01%.
By contrast, the rate on 10-year fixed private student loans was 9.82% for those with credit scores in the 600 to 639 range.
During the week of July 5, according to Credible, rates on 10-year fixed-rate private student loans averaged 5.27%, down from 5.47% the week before and 5.85% a year ago. Private student loan rates were at their lowest point of 4.99% during the week of .
If you’re out of school and making payments on your private student loans, you can look into refinancing those loans to tap into the lower rates being offered now. But Humann noted that you do not want to refinance federal student loans while the pandemic-related forbearance programs are in place.
Should parents tap into a home equity loan to cover college costs?
The rate is better through home equity borrowing or cash out refinancing, but that is probably the only advantage,» said Greg McBride, chief financial analyst for Bankrate.
But McBride warns that you’re using your home as collateral for the loan, the interest is not tax deductible as it used to be, and you would tie up valuable borrowing capacity.
«What happens,» he asks, «if you need a new roof next year but no longer have the equity to borrow from?