Is Private Student Loan Forgiveness and Option?

Private Student Loan Forgiveness: Urban Legend?

Is private student loan forgiveness real?

Let’s be honest. We’ve all encountered a feeling of being overwhelmed with our finances and may seek whatever remedies exist to get out of our rut. But in our state of haze, we must be careful to not fall for “fake news” or urban legends. Private student loan forgiveness does not exist; at least not in the traditional sense.

If you’re serious about getting free from the weight of crushing private student loan debt, we can help. Here are some options.

Seek Federal Student Loan Forgiveness First

While private student loan forgiveness does not technically exist, federal student loan forgiveness does. If you’ve borrowed federal loans, you may remember your entrance or exit loan counseling sessions (or bonus…you actually read your promissory note). And you’ll recall that it is possible to discharge your loans through programs such as Public Service Loan Forgiveness* and Teacher Loan Forgiveness*. These are options that exist in the Direct Loan Program. Additionally, there are loan forgiveness programs for certain government jobs and agencies. Plus, there are additional options for military personnel, AmeriCorps and Peace Corps volunteers, individuals participating in Income-Driven Repayment Plans, and more.

Pursuing forgiveness options that exist within the federal student loan program is a great way to help alleviate debt stress, because you’ll free up at least one source of financial burden.

*The existence of these forgiveness plan are written into law. Changes to laws can modify or eliminate the existence of federal forgiveness programs.

Ask About Employer-Sponsored Student Loan Repayment

According to New York Fed’s Quarterly Report on Household Debt and Credit (dated Aug. 2017), Americans owe $1.34 trillion in student loan debt. And not all of this debt is held by Millennials. There are also plenty of parents who borrowed PLUS loans to help pay for college. What this means is the workforce has been crying out for help in the form of additional employer benefits. And a number of big firms—including Aetna, Fidelity, and PwC—have answered the call. States like Tennessee are even jumping on the bandwagon by offering a $50 per month contribution to assist employees with their student loan repayment. As more companies evaluate employee benefits, it is likely we will see an even bigger increase in the number of employers who offer this perk.

Your immediate action item is to ask your employer if this is something currently offered. Many employers may offer a tuition reimbursement program, but it never hurts to ask if considerations may be made to extend this benefit to student loan repayment also.

Pursue a Student Loan Refinance

Student loan refinance (a.k.a. private student loan consolidation) is a great way to restructure private loan debt. In addition to combining multiple loans together—including federal loans, should you choose to include them—a refinance allows you to shop around for a lower interest rate. And, depending on your loan balance, it is quite likely that you can extend your repayment term, thereby lowering your monthly payment. If you’re overwhelmed and looking for breathing room in your budget, this could be a viable solution.

Call Your Lender

If you are experiencing difficulty repaying your private student loans, we highly encourage you to contact your lender. Many lenders offer some type of temporary hardship relief. You may be eligible for a deferment or forbearance, for example. It’s true that the time limit is not as generous as the federal program, but at least you have options. Plus, it’s always best to communicate proactively and explain your current situation to your lender(s) so they can help you find a solution, even if it’s temporary. There’s a lot at stake if you miss payments, including taking a hit to your credit score. Getting ahead of any issues you’re facing is critical to avoiding larger issues.

Wait, Can't Student Loans Be Included in Bankruptcy?

Since this article attempts to debunk urban legends around private student loan forgiveness, we need to address another popular myth…bankruptcy. You may have heard that it is generally impossible to discharge federal student loans via bankruptcy. But you may have been under the impression—or heard rumors—that it is possible to discharge private student loans in a bankruptcy proceeding. The reality is it’s not simple to include any student loans in a bankruptcy. In fact, it’s nearly impossible.

Ask Your Family to Help

Okay, this one is a bit touchy. Asking family (or friends) to help doesn’t necessarily mean that you invite them to write a check each month. You can start with the simple things that allow you to maximize your budget while seeking their support in the process. For example, instead of doing gift exchanges during the holidays, implement alternative gifting options or expressions that don’t require spending money. Or if someone is inclined to splurge on you for your birthday, respectfully ask that they give you an option to trade the value for payment towards your loan debt instead. When loved ones understand that you’re trying to get ahead and fulfill your student loan obligations, they are typically more than happy to help you out in this small way.