What Happens to Refinanced Student Loans Under Biden’s Forgiveness Plan?

President Joe Biden’s student loan forgiveness plan, announced August 24, could decrease the loan balances of millions of people by up to $20,000. But the forgiveness only applies to federally held loans. For borrowers who previously refinanced their federal loans into a private loan, forgiveness is likely out of the question, according to loan experts.

Robert Farrington, CEO of The College Investor, says that, in layman’s terms, when you refinance your student loan, you replace your federal loan with a private loan. “Private loans are owned by banks and lenders, and the government has no control over the terms and conditions of the loan,” he says. “Programs like loan forgiveness are only available for loans the government owns.”

Read more: Biden’s Student Loan Plan Wipes Out Debt for 20 Million Americans—But Leaves Millions Behind

Why do borrowers refinance their loans?

Ironically, while borrowers who refinanced their loans are now missing out on loan forgiveness, many did so in the first place to relieve money stress.

Refinancing federal student loans can be an attractive option for borrowers experiencing financial duress from trying to repay their debt. It allows borrowers to combine their monthly payments into one new monthly bill with just one lender, shorten or lengthen their loan repayment term, and, often most importantly, secure a lower interest rate than offered by the government.

The most common reason for refinancing student loans is to save money, says financial aid expert Mark Kantrowitz. “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 the interest rates on federal loans were several years ago.”

Federal student loan borrowers may have chosen to refinance via a private lender like a bank, credit union, or online lender.

What’s the catch with refinancing?

When borrowers decided to refinance their student loans through a private lender, they lost all of the federal loan protections they previously held, Farrington says. These protections include deferment or forbearance options, income-driven repayment plans, and loan forgiveness. Borrowers who refinanced their loans prior to the pandemic, for example, weren’t eligible to take advantage of the current pause on federal student loan payments and federal interest rate of 0%.

Farrington says that while many refinancing lenders put disclaimers on their site highlighting the federal loan pause, they’ve also continued to advertise and promote refinancing 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 post, it can be easy for borrowers to be drawn in by aggressive refinancing ad campaigns that gloss over the realities of the arrangement.

“These are not benevolent services, but profit-making ventures for these companies, and their offers may not always be in the best interest of student loan borrowers,” the Institute wrote.

Now, those who chose to refinance won’t qualify for Biden’s widespread cancellation.

“Too many federal student loan borrowers get hung up on their interest rate, and dismiss the value of all the federal options,” Farrington says.

What relief options exist for private loan borrowers?

There are no blanket loan forgiveness options for private loan borrowers.

However, some private lenders do offer their own protections—though they’re typically not as extensive as those available to federal loan borrowers. Kantrowitz says that private loan borrowers seeking relief should start by contacting their loan lender and asking about their options.

One protection that may still be available to private loan borrowers is a short-term forbearance, or suspension of their repayment obligation. “Generally speaking, these are offered in two- to three-month increments, with a maximum total of a year,” Kantrowitz says.

Private loan borrowers may also have the option of a partial forbearance, which would allow them to suspend payments on the principal balance of a loan while still paying off the new interest that accrues. “The downside is you’re still making a payment,” Kantrowitz says. “But the advantage is that it keeps the loan from growing larger.”