Private Student Loan ForgivenessEmail This Article
Is private student loan forgiveness really an option? There has been a lot of talk in the media and in political circles around student loan forgiveness. It’s hard to keep things straight between what is rumored and what is reality. So let’s cut through the “fake news” and deal with facts.
Private student loan forgiveness does not exist; at least not in the same way that federal student loan forgiveness exists. This article will examine some of the things you may be able to explore with your lender, or potentially with your attorney if you’re pursuing bankruptcy.
Private Student Loan Income Based Repayment
Income based repayment for private student loans does not exist the way it does for federal student loans, where there are a number of income-driven repayment options. But there may be some things you can do to help manage your monthly payments, including refinancing (which you can read more about in the next section). If you’re facing a hardship, here are a few things you may want to explore with your lender.
- Rate Reduction or Interest Only Plans – Ask if this is something your lender may be able to offer you. Some lenders may use different terminology, but the way this works is your lender would reduce your monthly payment amount temporarily in order to make it more affordable. This would be offered to individuals who have a hardship, so be prepared to document your circumstances.
- Deferment or Forbearance – While not offered by every lender, you should look into a temporary reprieve from your private student loan payments if you’re in financial trouble. The difference between federal student loans and private student loans is your ability to use deferments or forbearances. Under the federal program, deferments are something you are entitled to receive, as long as you meet the eligibility criteria. Forbearance is something you can use if you have a hardship and can provide justification for it (and if it is accepted and approved by your loan servicer). But private student loan lenders are not required to grant either of these. It is entirely up to them to offer a deferment or forbearance. So your best bet is to call or write your lender for help.
Student Loan Refinance Rates Today
Current student loan refinance rates are as low as 1.87% to 6.99%. Click here to find a preferred lender. In addition to competitive interest rates and low fees (or even zero fees), the lenders we work with offer flexible repayment terms with no prepayment penalty. And you can often see if you qualify for a low rate in a matter of minutes.
Student Loan Refinance
Student loan refinance (a.k.a. private student loan consolidation) is a great way to restructure your 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. To help you qualify, you have the option to apply with a creditworthy cosigner.
Can You File Bankruptcy on Private Student Loans?
Filing for bankruptcy on private student loans may be an option, but only in extreme circumstances. You may have heard that it is generally impossible to discharge federal student loans via bankruptcy. And you may have heard the same about private student loans. This is because you must demonstrate that repayment of your student loans would impose an undue hardship for you and your dependents. We are not attorneys and do not attempt to provide legal advice. So, we highly encourage you to seek counsel with a reputable bankruptcy lawyer about your options. There may also be different considerations depending on the state you live in, not to mention different interpretations by federal district courts and judges. This is because the U.S. Bankruptcy Code Section 523 (a)(8) at 11 U.S.C. does not have an official definition for undue hardship. The reality is it’s not simple to include any student loans in a bankruptcy.
Federal Student Loan Forgiveness
While private student loan forgiveness does not technically exist, federal student loan forgiveness does. If you’ve borrowed federal loans, you may remember some key takeaways from your entrance or exit loan counseling sessions (or from reading 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 plans are written into law. Changes to laws can modify or eliminate the existence of federal forgiveness programs.
Employer Student Loan Repayment
Ask your employer about student loan repayment benefits. This can be an overlooked option when it comes to getting help to pay down your debt. According to New York Fed’s Quarterly Report on Household Debt and Credit (dated Aug. 2020), Americans owe $1.54 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.
Call Your Lender
If you are experiencing difficulty repaying any of your loans, including your private student loans, we highly encourage you to contact your lender or loan servicer. 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 for private loans 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 avoid larger issues.