I refinanced my mortgage student loans – can I still have them cancelled?
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Dear Credible Money Coach,
We got a $100,000 mortgage on our house to pay off our student loans. Can we get the rest of the mortgage under this new federal program to pay off student loans? —Shamous
Hello Shamus and thank you for your question. Cancellation of student loans has been in the headlines for much of 2021. Unless the current forbearance program is extended, it will end on May 1 this year, when millions of people will have to resume the repayment of federal student loans.
To answer your question, let’s clear up a few things about student loan forgiveness, who is eligible for it, and what happens when you refinance federal student loans.
No “new” federal pardon program
You mention a “new federal program to repay student loans”. Although there was talk of forgiving $10,000 or even $50,000 in federal student loans per borrower, it’s just chatter right now. We are unlikely to see a large write-off of debt soon, if at all.
What to know about civil service loan forgiveness
Some federal student loan borrowers are eligible for Civil Service Loan Waiver (PSLF) program, depending on their job. The PSLF program allows certain borrowers with Federal Direct Loans to be forgiven of remaining balances after making 120 monthly payments. You must work full-time for an eligible employer in eligible employment serving the public. This includes military, government employees, teachers, public hospital employees, some non-profit workers and more.
Historically, qualifying for forgiveness under the PSLF program has been complicated and confusing to navigate. In 2021, the federal government took the following steps to improve the forgiveness and make it available to more borrowers:
- Expand the types of federal loans eligible for forgiveness
- Allow military and government employees to count forbearance months toward their 120 payment requirement
- Review and reconsider previously rejected PSLF applicants
- Make it easier to apply for the PSLF
- Simplify the rules for eligible payments
The answer to your question
To be eligible for the PSLF program, you must have an eligible federal student loan. Other types of debt, including private student loans, personal loans, credit cards and mortgages — are not eligible. This is because the federal government only has the power to cancel federal student loans.
Even though your original student loans were federal loans that would have qualified for the PSLF, you lost their benefits by refinancing them into a mortgage.
That doesn’t mean that pay off your student loans with a mortgage was the wrong decision. If you could refinance your mortgage at a lower rate than your original mortgage or student loans, you might have saved a significant amount of interest. Plus, you may have improved your cash flow by eliminating a monthly payment.
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About the Author: Laura Adams is a personal finance and small business expert, award-winning author and host of silver girl, a weekly audio podcast and top notch blog. She is frequently quoted in the national media and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her work as a speaker, spokesperson and advocate. She earned an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, instagram, Facebook, Twitter, and LinkedIn.