While private student loan forgiveness is not common, trustworthy lenders are committed to assisting you in avoiding default. They will collaborate with you to find feasible solutions and ensure financial stability.
Having a substantial student loan balance can pose challenges in meeting monthly payments and qualifying for other forms of credit. This is particularly relevant for private student loan borrowers who lack access to income-based repayment plans. Collectively, borrowers bear a burden of $128 billion in private student loans, accounting for 7.3% of the $1.76 trillion student loan market.
While student loan forgiveness doesn’t come with any shortcuts, you can take proactive measures to make your payments more manageable or seek payment assistance from your state. Remember, there are no easy routes, but there are ways to navigate this challenge.
Can Private Student Loans Be Forgiven?
Forgiveness of private student loans is a rare occurrence, generally reserved for instances where the borrower experiences permanent disability or unfortunate demise.
Private student loans do not offer forgiveness even if you work in a public service industry and diligently pay down your balance over a specific period of time. These options are only available for borrowers with federal student loans.
Regardless of whether the Supreme Court permits the plan to move forward, private student loan borrowers will not be eligible for the loan forgiveness program announced by President Joe Biden in August 2022.
According to Jay Fleischman, a student loan attorney, it’s important to note that the student loan forgiveness options put forth by the Biden administration exclusively apply to federal student loans and not to private educational debt.
That’s because the U.S. government owns federal loans. Private loans, on the other hand, are funded by lenders such as banks and credit unions.
According to Fleischman, lenders, and private student loan holders have the option to develop their own policies regarding forgiveness, discharge, and cancellation. However, it is not mandatory for them to do so under the law.
Private student loan forgiveness programs
- Citizens Bank: If the borrower passes away, the remaining student loan balance is forgiven, relieving the cosigner of responsibility. However, in the unfortunate event that the cosigner passes away, the primary borrower becomes liable for the outstanding balance. For information on forgiveness due to disability, please contact Citizens Bank’s customer service at 866-259-3767.
- College Ave: forgives the loan if the borrower dies or becomes permanently disabled. The cosigner’s death or disability does not affect the loan.
- Discover Bank: forgiveness happens upon the primary borrower’s death or permanent disability.
- Navient: Certain private student loans offer forgiveness in the event of permanent disability for the primary borrower. However, it’s worth noting that depending on the loan type, the cosigner may still be held accountable for repayment obligations in the unfortunate circumstance of the borrower’s passing.
- PNC Bank: While the balance is canceled if the borrower passes away, it’s worth noting that the same doesn’t apply if the cosigner passes away. For information regarding options for disability discharge, please reach out to PNC’s customer service team at 800-762-1001.
- Sallie Mae: In the unfortunate event of the borrower’s demise or permanent disability, the outstanding balance is waived. However, it is important to note that if the cosigner passes away or faces disability, the responsibility of repayment still lies with the student.
- SoFi: If a student were to pass away while in school or during the repayment period, the loan balance would be forgiven. However, if the cosigner were to pass away, the student would still be held responsible. To explore options for disability discharge, we encourage you to reach out to SoFi’s customer service team at 877-292-7470.
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What to Do if You Need Private Student Loan Forgiveness
If you find it challenging to meet the monthly payments on your private student loan, consider exploring the following alternatives to alleviate the burden.
Talk to your lender.
Before defaulting on your student loan, it’s crucial to make contact with your lender and have an open conversation about your financial situation. Missed payments have the potential to harm your credit score, and if they accumulate, you may find yourself facing legal action from the lender seeking the full amount owed. Take the initiative to inform your lender of your monthly affordability and provide supporting documentation such as recent bank statements or pay stubs. By doing so, you may find that your lender is willing to make accommodations such as temporary payment reductions, payment waivers, or a shift to interest-only payments.
Consider deferment or forbearance.
Both allow you to temporarily postpone or reduce your payments. However, there is a key distinction between forbearance and deferment: while in forbearance, interest generally accrues on your loan balance, whereas in deferment it does not. It’s important to note that private lenders may exercise their discretion in offering these options. Adam S. Minsky, a student loan attorney based in Boston, advises that these are not long-term solutions and may result in higher monthly payments once the temporary relief period ends.
Look at refinancing.
This step involves taking out a new private loan to pay off your original debt, a move with pros and cons to consider before proceeding. Reasons to refinance may include the ability to lock in a lower interest rate or extend your term to reduce your monthly payments. However, “The best refinancing products are limited to borrowers with high income and excellent credit,” Minsky says. If you go this route, consider asking a creditworthy friend or family member to co-sign the loan.
Apply for repayment assistance
Your state government may offer assistance programs to alleviate your loan burden, providing valuable resources to repay both federal and private loans. These programs, however, have eligibility criteria and relief amounts that can vary significantly, as highlighted by Minsky. To begin your search, visit your state’s department of education website or reach out to your state’s student loan ombudsman. While exploring these programs, carefully review the requirements to ensure you maintain eligibility for federal programs. Fleischman also recommends regularly reviewing program requirements to ensure ongoing qualification.
Negotiate student loan debt
If you find yourself in default on your student loan, there may be an opportunity to negotiate with your lender for a lump sum payment that is less than your total owed. Should your lender agree to this arrangement, ensure that you obtain written confirmation of the agreement and request a receipt upon making the payment. It is important to note that settling the account in this manner may have a negative impact on your credit score, as it may be reported to the credit bureaus as “settled.”
How do I get relief from a private student loan?
Although student loan forgiveness programs for private loans are limited, numerous alternatives for relief are available.
Loan Payment Assistance Programs:
Numerous states offer loan repayment assistance programs for professionals working in specific fields. Eligibility requirements differ by profession, with medical professionals and lawyers being the most common beneficiaries. Additionally, depending on your location, other career paths may also qualify for such programs.
2. Refinance:
Borrowers who boast excellent credit and a pristine credit history can secure lower interest rates on their private student loans through the process of refinancing. Many lenders offer a choice between a fixed interest rate, which remains consistent until the loan is fully repaid, and a variable interest rate, which fluctuates based on market conditions. Explore my comprehensive guide to student loan refinancing to compare and evaluate the available options.
3. Settlement:
Private student loan companies are open to accepting settlements from borrowers who have missed monthly payments or defaulted on their accounts. While settlement terms may differ depending on the lender, it is important to note that many student loan settlements are not typically a mere fraction of the original amount owed. In fact, agreements commonly involve paying around 40-70% of the current loan balance either as a lump sum or through a combination of monthly payments.
4. Leftover 529 plan funds:
Under federal law, borrowers have the option to utilize the remaining funds in their 529 college savings plans to repay qualified education loans, up to a maximum of $10 thousand per borrower. Additionally, these funds can also be allocated towards a beneficiary or their sibling, providing added flexibility and financial support.
5. Permanent disability and death:
Depending on your student loan lender, loan cancellation due to permanent disability is a possibility. It may also be available in the unfortunate event of the primary borrower’s death. However, it is worth noting that certain lenders might still pursue the cosigner, even if the deceased was the child of the cosigner.
6. Bankruptcy:
While private student loans can be discharged in bankruptcy, it is important to acknowledge the potential challenges. To initiate this process, one would need to file either a Chapter 7 or Chapter 13 bankruptcy. Following the successful discharge, a subsequent adversary proceeding must be filed to establish that the private student loans pose an undue hardship.