Privately Refinanced Student Loan Borrower Misses Debt Relief

  • Tanya Burnett, a federal government employee, refinanced her student debt with private loans in 2016.
  • Little did she know at the time that this would prevent her from benefiting from Biden’s recent federal loan forgiveness.
  • While she’s glad borrowers are getting relief, she wants officials who have refinanced to experience it too.

Most student loan borrowers have probably been hit with advertisements to refinance their loans, with the promise of lower monthly payments and a lower interest rate.

Tanya Burnett, a federal employee from Mississippi, thought that sounded like a pretty good deal.

In 2016, Burnett began paperwork to qualify for the Public Service Loan Forgiveness Program (PSLF), which forgives student debt for government employees and nonprofit organizations after ten years of qualifying payments. But when submitting her documents, she was told that she had not been enrolled in the program. She said she had the option of refinancing her loans with a monthly payment of $200 less than what she was paying before, from $800 to $600. It also meant taking his federal loans to a private lender.

So Burnett signed off on that lower monthly payment — but she didn’t realize she was also signing off on losing federal benefits.

“I didn’t know there was this disconnect,” Burnett, now 57, told Insider. “I thought that lower monthly payment was awesome. But if I had known that would have taken me out of the feds altogether, and there’s no connection to the pardon, I never would have done that. It wouldn’t have wasn’t worth it.”

There’s no way Burnett knew at the time that President Joe Biden would announce in August up to $20,000 in loan forgiveness for federal borrowers earning less than $125,000 a year. But she wishes the refinance terms had been made much clearer when she agreed to transfer her balance — now $86,000 — entirely to private loans, because not only is she now missing the federal loan forgiveness — she can’t not qualify for PSLF, although many of his indebted colleagues were able to do so.

She’s certainly not the only one who refinanced, and now she can’t take advantage of Biden’s one-time comprehensive debt relief. Even after Biden’s announcement, some student loan companies continued to offer refinancing as an option for borrowers, revealing only that they could lose federal relief in the fine print. Lawmakers, and even the Biden administration, fear that borrowers may be lured in by a lower monthly payment but end up losing a large debt write-off.

“They cheat people, and they do it now like they did with me years ago,” Burnett said. “People need to be aware that this has been happening from the start.”

“It’s a slap” for civil servants

Burnett isn’t upset about Biden’s student loan cancellation. In fact, she said she’s happy about it because it means other borrowers, like her daughter, can get the relief. What frustrates her the most is that she cannot use the PSLF, a federal program created for employees like her.

“I’m grateful, but I just think, what about all these people who are really struggling and serving the public? We’re servants, and yet we’re being misled,” Burnett said. “And that’s just not fair.”

Burnett’s loans are currently held by a company called Earnest, which manages and refinances private student loans, meaning it is unable to consolidate them into a federal loan that would qualify for the PSLF. Although she earns a six-figure salary and can afford her monthly payments, she is disappointed because she could have used the money to help her elderly parents if she had been eligible for debt relief.

As she deals with her monthly payments, lawmakers and the Biden administration have increased scrutiny of student loan companies recommending refinancing without clearly disclosing the risks.

As Insider previously reported, some companies were emailing borrowers following Biden’s announcement of relief offering refinancing as an option, saying it could lower interest rates on payments. Only in the fine print did they reveal that converting to private debt will prevent borrowers from receiving federal relief, which the Consumer Financial Protection Bureau says “raises serious concerns about whether whether student lenders fairly represent the trade-offs of refinancing into a private loan”.

In response to Insider’s reports, Massachusetts Sen. Elizabeth Warren and Rep. Ayanna Pressley sent letters to executives of the nine student loan companies asking for information on how they communicate refinance and repayment options to borrowers after a large debt cancellation.

“We’re notifying repairers,” Pressley told Insider. “It is imperative that services provide borrowers with accurate and up-to-date information about their student loans. Thanks to President Biden’s plan to cancel student debt, millions of people are now eligible for meaningful student debt cancellation and we need to make sure it’s delivered effectively and felt by as many people as possible.”

Burnett hopes other borrowers won’t fall into the same predicament as her, especially those working for the government.

“I’m happy for those who have their loans written off,” she said. “But I work for the federal government and I just thought it was a slap in the face for me.”

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