CFPB warns that federal student loan forgiveness opportunities may be lost for those who refinance.

• As a result of the Federal Reserve's recent reduction in interest rates, an increasing number of federal student loan borrowers are considering refinancing their loans.
• The Consumer Financial Protection Bureau has issued new cautionary messages to borrowers regarding the federal loan forgiveness options they will lose.

Some federal student loan borrowers are considering refinancing their loans due to the Federal Reserve's recent decision to lower interest rates and future cuts.

Betsy Mayotte, president of The Institute of Student Loan Advisors, stated that more borrowers are considering refinancing their federal loans.

A lower interest rate is the primary reason why borrowers typically refinance their federal student loans and convert them into private loans.

But the Consumer Financial Protection Bureau has new warnings about refinancing student debt.

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The CFPB published a report on Monday, stating that private lenders employ "deceptive" marketing and disclosure practices, which mislead student borrowers about a crucial aspect of refinancing: doing so results in the loss of access to federal student loan forgiveness options.

"Student loan companies should not profit by breaking the law and misleading borrowers about their protections or denying them their rightful benefits, as CFPB Director Rohit Chopra stated."

Federal forgiveness chances dashed with refinancing

The CFPB report states that some private lenders give the false impression that refinancing federal loans would not result in losing access to federal forgiveness programs, but in reality, it is a certainty.

The government provides various student debt relief options, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.

Those who teach full-time for five consecutive academic years in a low-income school or educational service agency can be eligible for loan forgiveness of up to $17,500 under the Teacher Loan Forgiveness (TLF) program. However, this option is not available to private student loan borrowers.

Borrowers who refinance would not be eligible for one-time forgiveness initiatives, such as President Joe Biden's Plan B.

Income-driven repayment plans are not available to private student loan borrowers who are having difficulty making their payments.

Federal student borrowers can pay only a portion of their discretionary income towards their debt each month under IDR plans, which eventually result in debt forgiveness after a specified duration.

The CFPB stated that borrowers who refinance their student loans lose access to federal relief options.

And this has cost borrowers.

The bureau stated in its report that lenders made profits when borrowers paid the full amount of their loans, even though the borrowers could have had some or all of those loans forgiven.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, stated that lenders inform borrowers of the benefits they may forfeit when making refinancing moves.

The Biden administration's efforts to deliver wide-scale student loan forgiveness to borrowers have been hindered by Republican-led legal challenges.

Buchanan stated that the Bureau should address the volatility and confusion to the Department of Education.

Mayotte advised against refinancing student loans due to the federal government's long-standing loan forgiveness programs and relief measures.

"We almost always very strongly recommend against it," she said.