Perhaps you have a large student loan balance and find it challenging to keep up with payments. Those with private student loans may have it even tougher, as they lack access to income-based repayment plans. For those borrowers, there are no easy paths to private student loan forgiveness.
However, there are measures you can take to get state assistance or to make your monthly payments more manageable.
What Are Federal Student Loans?
The federal government funds federal student loans, with conditions and terms established by law. The interest rate on these loans is fixed.
Payments aren’t due until you graduate, leave school, or switch your enrollment to less than half time. Also, no credit check is required for most federal student loans, which may be consolidated into a Direct Consolidation Loan.
If needed, you may be eligible for a government-subsidized loan. If you’re struggling to repay your loan, you may be able to lower or tentatively postpone your payments. You may also be able to tie your monthly payment to your income. And if you work in public service, you may be able to have part of your loan forgiven.
What Are Private Student Loans?
Private student loans are the various kinds of non-federal loans that are offered by private organizations such as banking institutions and state-affiliated or state-based organizations.
While payments are sometimes required while you’re still in school, some lenders will allow you to defer payments during that time. Private student loans can have fixed or variable interest rates.
Private student loans aren’t usually subsidized. For those that are, you are responsible for all loan interest.
You will need a cosigner or credit history for private loans, which may not be bundled into a Direct Consolidation Loan. Refinancing is possible, however, and there may be options for deferring or reducing your payments. In certain circumstances, some student loans from state agencies can be forgiven.
How Private Loan Forgiveness Works
Collectively, borrowers have taken out $130 billion in private student loans, totaling 7.5% of the nearly $2 trillion loan market. Funding your private student loan isn’t always easy.
Generally, these loans are only forgiven if the borrower dies or becomes permanently disabled. For private loans, relief options are largely up to your lender and your loan agreement, which you can request from your lender.
What to Do if You’re Struggling With Loan Payments
If you’re finding it difficult to make your private student loan payments, you can:
- Contact your lender. Before defaulting on your loan, tell your lender about your financial situation, letting them know how much you can afford monthly. You may be able to get your payments temporarily reduced or changed to interest-only payments. You also may be able to get a payment waived.
- Consider loan consolidation. You may be able to take out a new private loan with a lower interest rate. Further, it may be possible to extend your term to lower your monthly payment. For the best results, though, you’ll need a high income and excellent credit.
- Consider payment deferral or forbearance. These options are offered at the lender’s discretion. The main difference between deferment and forbearance is that, unlike with deferment, interest accrues during forbearance.
- Apply for assistance. Your state government may offer loan repayment assistance programs. Rather than discharging your debt, the programs provide cash that can go toward your loan debt. To begin your search, start with your state’s student loan ombudsman,
- Consider private student loan debt relief. You can also seek to settle with your lender—pay off your private student debt for less than what you owe.
It never hurts to call your lender and ask about options. You never know if a phone call could save you thousands of dollars and years of repayment.
In Summary
While true forgiveness for private student loans is rare, that doesn’t mean you’re out of options. If you’re facing financial difficulty, the most important step is to be proactive. Reach out to your lender to explore relief options, such as modified payment plans, forbearance, or deferment. You might also qualify for state-sponsored assistance or find opportunities to refinance at more favorable terms.
Private student loans can be tough to manage, but with the right strategy—and a little persistence—you may be able to ease the burden and take back control of your financial future.
