What You Need to Know About Private Student Loan Forgiveness
With few exceptions, you’re unlikely to find private student loan forgiveness. However, there is hope: While you might not wipe the slate clean, you could improve your debt situation by employing a few strategies, including repayment assistance and refinancing.
Can I get private student loan forgiveness?
Unlike with federal student loans, forgiveness rarely applies to private student loans. Some lenders offer student loan forgiveness if you die or become permanently disabled, but not all do. In addition, you’ll almost certainly still be on the hook for your private student loan if your cosigner dies.
Will private student loans be forgiven under Biden’s plan?
No. Regardless of the outcome of Biden’s student loan forgiveness program, this legislation only applies to federal student loans. Private loans are a business enterprise, and the government doesn’t have the authority to compel private lenders to grant forgiveness.
6 strategies for those struggling to pay back private student loans
If you’re struggling to pay back your private student loans, you’re not alone. Student loan statistics show that, in the third quarter of 2022, 3.0% of private student loans were delinquent by 30 to 89 days, and 1.6% were delinquent by more than 90 days. During the same period in 2021, these figures stood at 2.2% and 0.9%, respectively.
Whether our challenging economic landscape continues to cause an uptick in delinquency and defaults remains to be seen. Still, you might find some relief by taking one or more of the actions below:
1. Contact your lender
The first thing you can do if you’re having a hard time making your private student loan payments is to contact your lender.
Your lender likely doesn’t offer student loan forgiveness for private loans, but it might still offer help in other ways. For example, you might qualify for deferment or forbearance, which temporarily postpone your payments.
You should know, however, that not all lenders offer deferment or forbearance, and those that do have differing guidelines for how long you can postpone your payments. Note, as well, that your interest will continue to accrue while your payments are on hold.
Whatever you do, don’t simply abandon your payments. Defaulting on your student loan can tank your credit score, making it difficult to borrow money in the future. As such, keeping an open line of communication between yourself and your lender could be key.
2. Refinance your student loans
In some cases, refinancing your private student loans could be a boon for your budget. Depending on your creditworthiness, you might qualify for a lower interest rate than what you’re currently paying.
There are even some student loan refinancing lenders who offer additional perks for their members. For example, borrowers who refinance through SoFi Bank, N.A can qualify for career coaching and financial planning at no additional cost.
Like all financial decisions, though, there’s no one-size-fits-all approach to refinancing private student loans. Borrowers with lower credit scores or those who didn’t complete their degree may find they have fewer — and less ideal — options than others.
Check out our guide to deciding if refinancing is right for you, and if it is, be sure to shop around with multiple lenders to find the best deal for your situation.
You can also try our student loan refinance calculator to see how much you might save.
3. Explore private student loan repayment assistance programs
Most states offer some form of student loan repayment assistance, such as student loan grants for qualifying professionals.
Many of these programs are aimed at teachers, medical workers and lawyers who are willing to work for a given amount of time in underserved communities. Depending on the program, you can get money to repay your federal or private student loans.
Some programs are based solely on residency, rather than the job you do. The Kansas Rural Opportunity Zones program, for example, pays $15,000 over five years to qualifying borrowers who move to an eligible area in Kansas.
You can find out what’s available where you live or went to school by searching online or contacting your state education agency.
4. Optimize your federal loans (if you have them)
Although you aren’t likely to find a private student loan forgiveness program, there are many repayment options for federal student loans. These can be especially helpful when times get tough.
For instance, let’s say that you’ve had a career change that resulted in reduced income. In that case, an income-driven repayment plan (IDR) for the federal part of your student loan debt could be an excellent solution. An income-driven repayment plan will cap your monthly federal student loan payment based on how much money you make.
In essence, rather than paying off your federal and private loans equally, you could use an IDR to lower your federal student loan payment. Then, you can take those excess funds and put them toward your private student loan, paying more than the monthly minimum amount due.
Since private student loans tend to have higher interest rates than federal ones, this shuffling of funds fits well with the debt avalanche method, which targets high-interest debt first. This approach could save you a significant amount in interest costs over time.
5. Find an employer that offers student loan assistance
This tactic may not apply to everyone, but if you’re open to a new job, you could deliberately seek out companies that help their employees pay off their student loans.
Some companies offer a student loan matching benefit, similar to a 401(k) matching benefit, which can help keep your repayment on track.
6. Pick up a side hustle
If you’re not eligible for a raise, you might consider a side hustle. Some side hustles are more lucrative than others, but when it comes to paying off your student loans, every dollar counts.
For example, imagine your loan balance is $35,000, with an interest rate of 5%. If you have a 10-year loan term, your monthly payment would be $371. Putting just $50 extra a month toward this loan would take nearly a year and a half off of its life, saving $1,500 in interest payments.
Use our payoff calculator to see how much of an impact extra income from a side hustle can have on your student loan.
Frequently asked questions
It’s possible, though very difficult, to discharge your student loans through bankruptcy. Generally, bankruptcy for student loans only applies in the most extreme circumstances. To qualify, you must demonstrate that paying your student loans will cause an “undue financial hardship,” though the method courts use to determine the definition of “undue financial hardship” can vary. For more information, it may be best to consult a lawyer.
Good news — most private student loan lenders don’t charge loan origination fees. However, borrowers may want to look out for other student loan fees, such as prepayment penalties and late payment fees. If you’re considering refinancing your student loan, it’s important to read the fine print to know exactly what you’re getting into before signing the contract. You can’t reverse a student loan refinance if you change your mind.
No, unfortunately you cannot convert a private student loan to a federal student loan through refinancing or any other means. And since federal loans usually come with more flexible repayment options and lower interest, it’s best to focus on getting rid of your private loans first. See above for more details.