Connect with us

Personal Finance

Student loan forgiveness chances lost to those who refinance: CFPB

Published

on

Ivan Pantic | E+ | Getty Images

With the Federal Reserve’s recent moves to lower interest rates — and further cuts on the horizon — some federal student loan borrowers are wondering if now is a good time to refinance.

“We are already seeing more borrowers tempted to refinance their federal loans,” said Betsy Mayotte, president of The Institute of Student Loan Advisors.

Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.

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

More from Personal Finance:
The best tax bracket for a Roth IRA conversion
Senate plans to vote on Social Security bill for some pensioners
The ‘vibecession’ is over as optimism gains steam

In a report published Monday, the CFPB said that private lenders use “deceptive” practices in their marketing and disclosure materials, misleading student borrowers about a key pitfall of refinancing: Those who do so lose access to federal student loan forgiveness options.

“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” said CFPB Director Rohit Chopra. “Student loan companies should not profit by violating the law.”

Federal forgiveness chances dashed with refinancing

Some private lenders give the wrong impression “that refinancing federal loans might not result in forfeiting access to federal forgiveness programs, when, in fact, it was a certainty,” the CFPB report says.

The federal government offers a range of student debt forgiveness programs, including Public Service Loan Forgiveness and Teacher Loan Forgiveness.

PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments. Under TLF, 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. These options are not available to private student loan borrowers.

Borrowers refinancing would also not be eligible for one-off forgiveness efforts like President Joe Biden’s Plan B.

Private student loan borrowers who are struggling to pay their bills don’t have a right to an income-driven repayment plan, either.

IDR plans allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period.

Borrowers who refinance their student loans lose access to these federal relief options, the CFPB said.

And this has cost borrowers.

“The lenders profited from borrowers paying the full amount of their loans, when the borrowers otherwise potentially could have had some or all of those loans forgiven,” the bureau wrote in its report.

Lenders do inform borrowers of what benefits they may give up by making moves like refinancing, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for student loan servicers.

Buchanan said the government’s changing promises around student loan forgiveness has led to a lack of clarity. (Republican-led legal challenges have stymied the Biden administration’s efforts to deliver wide-scale student loan forgiveness to borrowers.)

“That volatility and confusion is something the Bureau needs to take up with the Department of Education,” Buchanan said.

But the federal government’s long-standing student loan forgiveness programs and other relief measures are reasons alone to think twice before refinancing, Mayotte said.

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

Continue Reading

Personal Finance

‘What’s the point’ of saving money

Published

on

Xavier Lorenzo | Moment | Getty Images

Gen Z seems to have a case of economic malaise.

Nearly half (49%) of its adult members — the oldest of whom are in their late 20s — say planning for the future feels “pointless,” according to a recent Credit Karma poll.

A freewheeling attitude toward summer spending has taken root among young adults who feel financial “despair” and “hopelessness,” said Courtney Alev, a consumer financial advocate at Credit Karma.

They think, “What’s the point when it comes to saving for the future?” Alev said.

That “YOLO mindset” among Generation Z — the cohort born from roughly 1997 through 2012 — can be dangerous: If unchecked, it might lead young adults to rack up high-interest debt they can’t easily repay, perhaps leading to delayed milestones like moving out of their parents’ home or saving for retirement, Alev said.

But your late teens and early 20s is arguably the best time for young people to develop healthy financial habits: Starting to invest now, even a little bit, will yield ample benefits via decades of compound interest, experts said.

“There are a lot of financial implications in the long term if these young people aren’t planning for their financial future and [are] spending willy-nilly however they want,” Alev said.

Why Gen Z feels disillusioned

That said, that many feel disillusioned is understandable in the current environment, experts said.

The labor market has been tough lately for new entrants and those looking to switch jobs, experts said.

The U.S. unemployment rate is relatively low, at 4.2%. However, it’s much higher for Americans 22 to 27 years old: 5.8% for recent college grads and 6.9% for those without a bachelor’s degree, according to Federal Reserve Bank of New York data as of March 2025.

More from FA Playbook:

Here’s a look at other stories affecting the financial advisor business.

Young adults are also saddled with debt concerns, experts said.

“They feel they don’t have any money and many of them are in debt,” said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California. “And they’re wondering if the degree they have (or are working toward) will be of value if A.I. takes all their jobs anyway. So is it just pointless?”

About 50% of bachelor’s degree recipients in the 2022-23 class graduated with student debt, with an average debt of $29,300, according to College Board.

The federal government restarted collections on student debt in default in May, after a five-year pause.

The Biden administration’s efforts to forgive large swaths of student debt, including plans to help reduce monthly payments for struggling borrowers, were largely stymied in court.

“Some hoped some or more of it would be forgiven, and that didn’t turn out to be the case,” said Sun, a member of CNBC’s Financial Advisor Council.

Meanwhile, in a 2024 report, the New York Fed found credit card delinquency rates were rising faster for Gen Z than for other generations. About 15% had maxed out their cards, more than other cohorts, it said.

Market Navigator: Buy now, pay later boom

It’s also “never been easier to buy things,” with the rise of buy now, pay later lending, for example, Alev said.

BNPL has pushed the majority of Gen Z users — 77% — to say the service has encouraged them to spend more than they can afford, according to the Credit Karma survey. The firm polled 1,015 adults ages 18 and older, 182 of whom are from Gen Z.

These financial challenges compound an environment of general political and financial uncertainty, amid on-again-off-again tariff policy and its potential impact on inflation and the U.S. economy, for example, experts said.

“You start stacking all these things on top of each other and it can create a lack of optimism for young people looking to get started in their financial lives,” Alev said.

How to manage that financial malaise

Patricio Nahuelhual | Moment | Getty Images

“This is actually the most exciting time to invest, because you’re young,” Sun said.

Instituting mindful spending habits, such as putting a waiting period of at least 24 hours in place before buying a non-essential item, can help prevent unnecessary spending, she added.

Sun advocates for paying down high-interest debt before focusing on investing, so interest payments don’t quickly spiral out of control. Or, as an alternative, they can try to fund a 401(k) to get their full company match while also working to pay off high-interest debt, she said.

“Instead of getting into the ‘woe is me’ mode, change that into taking action,” Sun said. “Make a plan, take baby steps and get excited about opportunities to invest.”

Continue Reading

Personal Finance

Trump admin seeks Education Department layoff ban lifted

Published

on

A demonstrator speaks through a megaphone during a Defend Our Schools rally to protest U.S. President Donald Trump’s executive order to shut down the U.S. Department of Education, outside its building in Washington, D.C., U.S., March 21, 2025.

Kent Nishimura | Reuters

The Trump administration on Friday asked the Supreme Court to lift a court order to reinstate U.S. Department of Education employees the administration had terminated as part of its efforts to dismantle the agency.

Officials for the administration are arguing to the high court that U.S. District Judge Myong Joun in Boston didn’t have the authority to require the Education Department to rehire the workers. More than 1,300 employees were affected by the mass layoffs.

The staff reduction “effectuates the Administration’s policy of streamlining the Department and eliminating discretionary functions that, in the Administration’s view, are better left to the States,” Solicitor General D. John Sauer wrote in the filing.

A federal appeals court had refused on Wednesday to lift the judge’s ruling.

In his May 22 preliminary injunction, Joun pointed out that the staff cuts led to the closure of seven out of 12 offices tasked with the enforcement of civil rights, including protecting students from discrimination on the basis of race and disability.

Meanwhile, the entire team that supervises the Free Application for Federal Student Aid, or FAFSA, was also eliminated, the judge said. (Around 17 million families apply for college aid each year using the form, according to higher education expert Mark Kantrowitz.)

The Education Dept. announced its reduction in force on March 11 that would have gutted the agency’s staff.

Two days later, 21 states — including Michigan, Nevada and New York — filed a lawsuit against the Trump administration for its staff cuts at the agency.

After President Donald Trump signed an executive order on March 20 aimed at dismantling the Education Department, more parties sued to save the department, including the American Federation of Teachers.

This is breaking news. Please refresh for updates.

Continue Reading

Personal Finance

Health insurance coverage losses under House GOP tax, spending bill

Published

on

Fatcamera | E+ | Getty Images

The House tax and spending bill would push millions of Americans off health insurance rolls, as Republicans cut programs like Medicaid and the Affordable Care Act to fund priorities from President Donald Trump, including almost $4 trillion of tax cuts. 

The Congressional Budget Office, a nonpartisan legislative scorekeeper, projects about 11 million people would lose health coverage due to provisions in the House bill, if enacted in its current form. It estimates another 4 million or so would lose insurance due to expiring Obamacare subsidies, which the bill doesn’t extend.

The ranks of the uninsured would swell as a result of policies that would add barriers to access, raise insurance costs and deny benefits outright for some people like certain legal immigrants.  

The legislation, known as the “One Big Beautiful Bill Act,” may change as Senate Republicans now consider it. Health care cuts have proven to be a thorny issue. A handful of GOP senators — enough to torpedo the bill — don’t appear to back cuts to Medicaid, for example.

More from Personal Finance:
How debt impact of House GOP tax bill may affect consumers
3 key money moves to consider while the Fed keeps interest rates higher
How child tax credit could change as Senate debates Trump’s mega-bill

The bill would add $2.4 trillion to the national debt over a decade, CBO estimates. That’s after cutting more than $900 billion from health care programs during that time, according to the Penn Wharton Budget Model.

The cuts are a sharp shift following incremental increases in the availability of health insurance and coverage over the past 50 years, including through Medicare, Medicaid and the Affordable Care Act, according to Alice Burns, associate director with KFF’s program on Medicaid and the uninsured.

“This would be the biggest retraction in health insurance that we’ve ever experienced,” Burns said. “That’s makes it really difficult to know how people, providers, states, would react.”

Here are the major ways the bill would increase the number of uninsured.

No population ‘safe’ from proposed Medicaid cuts

Speaker of the House Mike Johnson, R-La., pictured at a press conference after the House narrowly passed a bill forwarding President Donald Trump’s agenda on May 22 in Washington, DC.

Kevin Dietsch | Getty Images

Federal funding cuts to Medicaid will have broad implications, experts say.

“No population, frankly, is safe from a bill that cuts more than $800 billion over 10 years from Medicaid, because states will have to adjust,” said Allison Orris, senior fellow and director of Medicaid policy at the Center on Budget and Policy Priorities.

The provision in the House proposal that would lead most people to lose Medicaid and therefore become uninsured would be new work requirements that would apply to states that expanded Medicaid under the Affordable Care Act, according to Orris.

The work requirements would affect eligibility for individuals ages 19 to 64 who do not have a qualifying exemption. Affected individuals would need to demonstrate they worked or participated in qualifying activities for at least 80 hours per month.

States would also need to verify that applicants meet requirements for one or more consecutive months prior to coverage, while also conducting redeterminations at least twice per year to ensure individuals who are already covered still comply with the requirements.

CMS Administrator Dr. Oz: Major goal in Medicaid is to align the federal government with the states

In a Sunday interview with NBC News’ “Meet the Press,” House Speaker Mike Johnson, R-La., said “4.8 million people will not lose their Medicaid coverage unless they choose to do so,” while arguing the work requirements are not too “cumbersome.”

The Congressional Budget Office has estimated the work requirements would prompt 5.2 million adults to lose federal Medicaid coverage. While some of those may obtain coverage elsewhere, CBO estimates the change would increase the number of people without insurance by 4.8 million.

Those estimates may be understated because they do not include everyone who qualifies but fails to properly report their work hours or submit the appropriate paperwork if they qualify for an exemption, said KFF’s Burns.

Overall, 10.3 million would lose Medicaid, which would lead to 7.8 million people losing health insurance, Burns said.

Proposal creates state Medicaid funding challenges

Protect Our Care supporters display “Hands Off Medicaid” message in front of the White House ahead of President Trump’s address to Congress on March 4 in Washington, D.C. 

Paul Morigi | Getty Images Entertainment | Getty Images

While states have used health care provider taxes to generate funding for Medicaid, the House proposal would put a stop to using those levies in the future, Orris noted.

Consequently, with less revenue and federal support, states will face the tough choice of having to cut coverage or cut other parts of their state budget in order to maintain their Medicaid program, Orris said.

For example, home and community-based services could face cuts to preserve funding for mandatory benefits like inpatient and outpatient hospital care, she said.

The House proposal would also delay until 2035 two Biden-era eligibility rules that were intended to make Medicaid enrollment and renewal easier for people, especially older adults and individuals with disabilities, Burns said.

States would also have their federal matching rate for Medicaid expenditures reduced if they offer coverage to undocumented immigrants, she said.

Affordable Care Act cuts ‘wonky’ but ‘consequential’

Senate Minority Leader Chuck Schumer, D-N.Y., speaks about the health care impacts of the Republican budget and policy bill, also known as the “One Big Beautiful Bill Act,” during a June 4 news conference in Washington, D.C.

Saul Loeb | Afp | Getty Images

More than 24 million people have health insurance through the Affordable Care Act marketplaces.  

They’re a “critical” source of coverage for people who don’t have access to health insurance at their jobs, including for the self-employed, low-paid workers and older individuals who don’t yet qualify for Medicare, according to researchers at the Center on Budget and Policy Priorities, a left-leaning think tank.

The House legislation would “dramatically” reduce ACA enrollment — and, therefore, the number of people with insurance — due to the combined effect of several changes rather than one big proposal, wrote Drew Altman, president and chief executive of KFF, a nonpartisan health policy group.

“Many of the changes are technical and wonky, even if they are consequential,” Altman wrote.

Expiring ACA subsidies add to coverage costs

ACA enrollment is at an all-time high. Enrollment has more than doubled since 2020, which experts largely attribute to enhanced insurance subsidies offered by Democrats in the American Rescue Plan Act in 2021 and then extended through 2025 by the Inflation Reduction Act.

Those subsidies, called “premium tax credits,” effectively reduce consumers’ monthly premiums. (The credits can be claimed at tax time, or households can opt to get them upfront via lower premiums.)

Congress also expanded the eligibility pool for subsidies to more middle-income households, and reduced the maximum annual contribution households make toward premium payments, experts said. 

Sen. James Lankford: We do not have the votes to pass the House GOP bill as is

The enhanced subsidies lowered households’ premiums by $705 (or 44%) in 2024 — to $888 a year from $1,593, according to KFF.

The House Republican legislation doesn’t extend the enhanced subsidies, meaning they’d expire after this year.

About 4.2 million people will be uninsured in 2034 if the expanded premium tax credit expires, according to the Congressional Budget Office.

“They might just decide not to get [coverage] because they simply can’t afford to insure themselves,” said John Graves, a professor of health policy and medicine at Vanderbilt University School of Medicine. 

Coverage will become more expensive for others who remain in a marketplace plan: The typical family of four with income of $65,000 will pay $2,400 more per year without the enhanced premium tax credit, CBPP estimates.

Adding red tape to eligibility, enrollment

More than 3 million people are expected to lose Affordable Care Act coverage as a result of other provisions in the House legislation, CBO projects.

Other “big” changes include broad adjustments to eligibility, said Kent Smetters, professor of business economics and public policy at the University of Pennsylvania’s Wharton School. 

For example, the bill shortens the annual open enrollment period by about a month, to Dec. 15, instead of Jan. 15 in most states. 

It ends automatic re-enrollment into health insurance — used by more than half of people who renewed coverage in 2025 — by requiring all enrollees to take action to continue their coverage each year, CBPP said.

Senate Majority Leader Sen. John Thune (R-SD) (C) speak alongside Sen. John Barrasso (R-WY) (L) and Sen. Mike Crapo (R-ID) (R) outside the White House on June 4, 2025. The Senators met with President Donald Trump to discuss Trump’s “One, Big, Beautiful Bill” and the issues some members within the Republican Senate have with the legislation and its cost.

Anna Moneymaker | Getty Images News | Getty Images

The bill also bars households from receiving subsidies or cost-sharing reductions until after they verify eligibility details like income, immigration status, health coverage status and place of residence, according to KFF.

Graves says adding administrative red tape to health plans is akin to driving an apple cart down a bumpy road. 

“The bumpier you make the road, the more apples will fall off the cart,” he said. 

Uncapping subsidy repayments

Another biggie: The bill would eliminate repayment caps for premium subsidies. 

Households get federal subsidies by estimating their annual income for the year, which dictates their total premium tax credit. They must repay any excess subsidies during tax season, if their annual income was larger than their initial estimate. 

Current law caps repayment for many households; but the House bill would require all premium tax credit recipients to repay the full amount of any excess, no matter their income, according to KFF.

While such a requirement sounds reasonable, it’s unreasonable and perhaps even “cruel” in practice, said KFF’s Altman.

“Income for low-income people can be volatile, and many Marketplace consumers are in hourly wage jobs, run their own businesses, or stitch together multiple jobs, which makes it challenging, if not impossible, for them to perfectly predict their income for the coming year,” he wrote. 

Curtailing use by immigrants

The House bill also limits marketplace insurance eligibility for some groups of legal immigrants, experts said. 

Starting Jan. 1, 2027, many lawfully present immigrants such as refugees, asylees and people with Temporary Protected Status would be ineligible for subsidized insurance on ACA exchanges, according to KFF.

Additionally, the bill would bar Deferred Action for Childhood Arrivals recipients in all states from buying insurance over ACA exchanges.

DACA recipients — a subset of the immigrant population known as “Dreamers” — are currently considered “lawfully present” for purposes of health coverage. That makes them eligible to enroll (and get subsidies and cost-sharing reductions) in 31 states plus the District of Columbia.

Continue Reading

Trending