Meet a government worker who regrets refinancing her student debt because she didn't know it would block her from federal loan forgiveness: 'I never would have done that'

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  • Tanya Burnett, a federal government worker, refinanced her student debt into private loans in 2016.

  • She wasn't aware at the time that doing so would block her from Biden's recent federal loan forgiveness.

  • While she's happy for borrowers getting relief, she wishes public servants who refinanced could also experience it.

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 in Mississippi, thought it sounded like a pretty good deal.

In 2016, Burnett started paperwork to qualify for the Public Service Loan Forgiveness (PSLF) program, which forgives student debt for government and nonprofit workers after ten years of qualifying payments. But upon submission of her paperwork, she was told she had not been enrolled in the program. She said she was given the option to refinance her loans with a monthly payment $200 less than what she had previously been paying, from $800 to $600. It also meant taking her 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 that disconnect," Burnett, now 57, told Insider. "I thought that lower monthly payment was great. But if I had known this would totally have taken me out of the federal, and there's no connection at all regarding forgiveness, I never would have done that. It wasn't worth it."

There's no way Burnett would have known at the time that President Joe Biden would in August announce up to $20,000 in loan forgiveness for federal borrowers making under $125,000 a year. But she wishes the conditions of refinancing had been made much more clear when she agreed to switch her balance — now $86,000 — completely to private loans, because not only is she now missing out on federal loan forgiveness — she can't qualify for PSLF, despite many of her colleagues with federal debt being able to do so.

She's certainly not the only one who refinanced, and now, cannot take advantage of Biden's one-time blanket debt relief. Even after Biden's announcement, some student-loan companies were continuing to offer refinancing as an option for borrowers, only disclosing they could lose federal relief in the fine print. It has lawmakers, and even Biden's administration, concerned that borrowers might be enticed by a lower monthly payment but end up losing out on significant debt cancellation.

"They're misleading people, and they're doing it now like they did with me years ago," Burnett said. "People need to be aware that this has been happening all along."

'It's a slap in the face' for government workers

Burnett isn't upset about Biden's student-loan forgiveness. In fact, she said she's happy about it because it means other borrowers, like her daughter, can benefit from this relief. What frustrates her the most is that she can't make use of PSLF — a federal program created for employees just like herself.

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

Burnett's loans are currently held by a company called Earnest, which manages and refinances private student loans, meaning she's unable to consolidate them into a federal loan that would qualify for PSLF. While she makes a six-figure salary and can afford her monthly payments, she's disappointed because she could have instead used that money to help her elderly parents had she qualified for debt relief.

As she's chugging along with her monthly payments, lawmakers and Biden's administration have increased scrutiny over student-loan companies recommending refinancing without clearly disclosing the risks.

As Insider previously reported, some companies were sending emails to 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 disclose that converting to private debt will block borrowers from receiving federal relief, which the Consumer Financial Protection Bureau told Insider "raises serious concerns about whether student lenders are fairly representing the tradeoffs of refinancing to a private loan."

In response to Insider's reporting, Massachusetts Sen. Elizabeth Warren and Rep. Ayanna Pressley sent letters to the leaders of all nine student-loan companies requesting information on how they are communicating refinancing and repayment options to borrowers following broad debt cancellation.

"We're putting the servicers on notice," Pressley told Insider. "It's imperative that servicers provide borrowers with accurate and up-to-date information on their student loans. Thanks to President Biden's plan to cancel student debt, millions are now eligible for meaningful student loan debt cancellation and we need to ensure it is administered efficiently and felt by as many people as possible."

Burnett hopes that other borrowers don't fall into the same situation that she did — especially those working for the government.

"I'm happy for the ones that are getting 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."

Read the original article on Business Insider