Lillian Karabaic is Pay Dirt’s new weekly columnist. She’s currently the host of Oh My Dollar!, a syndicated financial radio show, and a retirement advisor with Chaim Investment Advisors. She focuses on modern money issues that aren’t typically represented in the mainstream, like variable income, LGBTQ+ relationships, and trans health care.
Dear Pay Dirt,
Two and a half years ago I refinanced my federal direct student loans (at the time with Navient) with a private company (Earnest) to obtain a significantly lower interest rate. I thought I was making a good financial decision at the time and I never imagined the financial repercussions.
I have since discovered that I would have met the expanded criteria for Public Service Loan Forgiveness Program (PSLF). I worked for a non-profit/tax-exempt institution since 2009 and made 120 qualifying monthly payments with no lapse in payments. I was informed by the Department of Education that my loans are not eligible for consolidation because my loans are private, due to the aforementioned refinancing with a private company. To be fair to the company I refinanced with, I WAS warned, I just never imagined I would ever be eligible for PSLF or any other program. Do I have any recourse for reconverting my loans to take advantage of PSLF? If not, what should I do about my loans?
—Forever in Student Loan Debt
Dear Forever in Student Loan Debt,
Your letter highlights our glaring problem with student loans in this country: There are too many servicers, repayment programs, and loan types for borrowers to be properly informed. Even when you think you are making a financially prudent decision, you are still gambling on the future of constantly-changing repayment and forgiveness programs.
We’ve set up the system expecting 18-year-old students to sign up for the equivalent of a 20-year-long mortgage payment. There’s no evaluation of the borrower’s income or credit (except PLUS loans) as there would be with a mortgage. It’s like buying a house not knowing how much the monthly payment will be, where the house is located, or if the basement is infested with toxic mold.
You made a gamble on refinancing your loans, and unfortunately, you lost out on forgiveness programs with that gamble. I am disappointed to report that you don’t have a way back into the federal loans under current rules. This means you don’t qualify for PSLF and other forgiveness eligibility (like the $10,000 forgiveness announced by the White House last month). While you don’t qualify for PSLF, it is worth investigating if you qualify for any career- or location-based forgiveness programs for private student loans.
When you decided to refinance the loans, presumably, you had a plan about what you would do about them. The plan you made two and a half years ago should be your plan going forward—until things inevitably change yet again in the world of student loans.
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