Private student loans are not currently eligible for student loan forgiveness programs. There are some alternatives for those who need help making payments, though. This includes forbearance, student loan refinancing, and other payment assistance programs.
Unlike federal student loans, private student loans are disbursed by private lenders, not the federal government. Borrowers with these loans rarely have the same protections as those with federal loans, such as loan forgiveness. Only a few private lenders offer income-based repayment plans or hardship options for borrowers.
In most cases, there are only two ways to discharge private student loans: the primary borrower either passes away or receives a permanent and total disability. Even then, the lender is not legally required to forgive the remaining balance.
With one of these student loan forgiveness alternatives, it may be possible to find some relief for private student loans. Keep in mind that they don’t work for everyone. Some of these options are also considered short-term solutions rather than long-term ones.
Can Private Student Loans Be Forgiven?
Private student loans cannot be forgiven, at least not by the same measures as federal loans.
The Biden Administration has been working on implementing more widespread student loan forgiveness programs. However, these programs are currently only available for federal student loan borrowers. This is mainly because federal loans are offered through the U.S. Department of Education, a federal government agency. Private student loans, meanwhile, are issued by private lenders such as credit unions, traditional banks, and online lenders.
Private lenders are not legally obligated to offer hardship programs or repayment plans to borrowers. They do have the ability to forgive loan balances, but they don’t have to, and they very rarely do.
Some private lenders may choose to discharge the loans, such as if the primary borrower dies. This is potentially good news for cosigners as it can also release them from the responsibility of repaying these loans.
There has been some talk about canceling private student loan debt for low-income borrowers or those with a qualifying disability. For this to happen, the government would have to pass new legislation. Doing this could make the government responsible for paying the remaining balance on any loans instead of the original borrowers. At this time, there are no set plans for this to happen.
For now, most full or partial forgiveness programs and income-driven repayment plans are limited to federal student loan borrowers. Even for these borrowers, there’s no guarantee of debt forgiveness or relief.
Even though private student loans are not eligible for federal or independent forgiveness programs, there are some forms of relief available. Some private lenders will work with borrowers who would be unable to pay otherwise. They may offer hardship options like custom repayment plans, refinancing, or forbearance. They may also offer lower monthly payments or interest exemptions, depending on the situation.
Private Student Loan Forgiveness Alternatives
Here are the top 5 alternatives to private student loan forgiveness:
- Forbearance: With forbearance, the borrower can stop making payments on their loans for up to 12 months. It’s mainly for those experiencing a sudden or unexpected financial hardship, such as a lost job or medical complication. The idea is that the borrower will use this time to improve their finances and make a long-term repayment plan. Interest will continue to accrue while the loans are in forbearance, meaning the balance will also increase. Some lenders charge a fee for putting the loans into forbearance.
- Deferment: A few lenders offer deferment, which also lets borrowers postpone payments, usually for up to 6 months. This is mainly meant for borrowers who are returning to school or joining the military. Eligibility mainly depends on income and financial means. For example, full-time employees who make less than 150% of the poverty line may qualify. Some people may qualify for other types of deferment, such as unemployment, rehabilitation training, or cancer treatments. Interest may still accrue on private student loans in deferment, but not always.
- Refinancing: For borrowers with good credit, refinancing could be a way to lower the loans’ interest rate. This could save borrowers money in interest fees and lower monthly payments. It could also potentially reduce the total payoff period by a few years. For federal loans, refinancing could make them ineligible for student loan forgiveness programs. This is not usually a problem for private student loans but check with your current lender before refinancing just in case.
- Debt consolidation: Debt consolidation lets you combine multiple private student loans into one loan with a single monthly payment. This new loan usually comes with a fixed interest rate. It may also lower your monthly payment, which could increase the loan term. There are several ways to consolidate student loan debt, such as with a home equity loan or a debt consolidation loan.
- Repayment assistance programs: Some states offer location-based repayment assistance programs for those seeking relief for private student loans. The state may help repay part of the loans if the borrower moves to a specific, often rural, area. There are also career-based programs, which are typically offered through state governments or private associations. To qualify, the borrower may need to commit to working in a high-need field, such as medicine, education, or law. A few private employers will also help full-time employees with student loan repayment.
Speak with your lender about your options. See if they’d be willing to set up a flexible repayment plan with lower monthly interest or payments. Depending on your reasons, they might be willing to work with you.
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Should You Refinance Student Loans?
There are several advantages to refinancing private student loans, such as potentially lowering your monthly payments. However, it’s not for everyone.
Here are some reasons to refinance your loans:
- Lower the monthly minimum payment. Refinancing could free up more cash each month, which can be put toward the principal balance. Paying more toward the principal could mean paying off the loan faster.
- Reduce interest rates. Private student loans usually have a variable interest rate ranging from 1% to 13%. Depending on market changes, this could mean expensive monthly payments. Refinancing could get you a lower, fixed interest rate with set monthly payments.
There are a few downsides to refinancing, though, such as:
- Higher credit requirements. To qualify, borrowers usually need good credit (670+ FICO) and a low debt-to-income ratio (DTI). Those with poor credit may not qualify for the best interest rates and terms. This could make refinancing more expensive.
- Variable interest rates may be lower than fixed. Depending on the market and your original loan, the new interest rate may be higher.
- Won’t resolve any major financial issues. Refinancing won’t necessarily help if you struggle to make payments on time or are experiencing other financial hardships.
- Could extend the life of the loan. If you only make the minimum monthly payments on the new loan, it could increase the loan term.
Currently, there is no student loan forgiveness for private loans. Borrowers with these loans don’t benefit from the same government protections as those with federal loans. Only a few private lenders offer any kind of hardship program or income-based repayment plans.
However, there is some relief for private student loans, such as forbearance, refinancing, or debt consolidation. Some private lenders may also forgive the loan balance if the primary borrower has a total disability or has passed away.
Can private student loans be forgiven?
Private loan student loan forgiveness does not exist at the federal level. However, some private lenders will forgive the balance if the primary borrower dies or has a permanent disability. This can also free any cosigners from the responsibility of repaying the loans.
Are private student loans forgiven after 20 years?
Unfortunately, there is no student loan forgiveness for private loans, not even after 20 years. Even declaring bankruptcy may not get the loans dismissed. The borrower and any cosigners are responsible for repayment until the balance reaches zero. The only exception is if the lender decides to forgive or reduce the balance for any reason.
What happens if you cannot pay private student loans?
If you don’t pay your private student loans, your lender could take you to court. The court could then garnish your wages or seize your assets to help cover what’s due. The statute of limitations on these loans is 3 to 10 years, depending on the state. After this period, the lender can no longer take legal action against you. They can, however, still try to collect the debt owed.