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What to know about private student loan forgiveness and how to save money on your private student loans. (Shutterstock)
According to data exchange platform MeasureOne, private student loans make up roughly 7.6% of the trillion-dollar student loan market. But private student borrowers carry a total share of more than $123 billion of total US student debt.
The blanket student loan relief announced by President Joe Biden on August 24 does not apply to private student loans. They are funded by private lenders, not the federal government.
If you have private student loans, there are steps you can take that might help you manage your payments, lower their cost, and pay them back faster, including refinancing.
With Credible, you can easily compare student loan refinance rates from multiple lenders in minutes.
Can you get private student loan forgiveness?
Government and independent student loan forgiveness programs do not apply to private student loans. Only federal student loans can be forgiven.
That said, your private student lender may offer some kind of relief to borrowers in financial difficulty. You may be able to contact your lender and request a payment break, or a lower interest rate or payment amount. But these measures will be temporary and interest will continue to accrue during the relief period.
WHAT BIDEN’S LOAN FORGIVENESS REALLY MEANS FOR MANY STUDENT LOAN BORROWERS
Can Bankruptcy Cancel Private Student Loan Debt?
Federal student loans cannot be discharged through bankruptcy. Private student loan debt can, although the process can be more difficult than paying off other types of debt, such as credit card debt.
According to the Consumer Financial Protection Bureau, certain types of private student loans may require borrowers who file for bankruptcy to demonstrate extreme financial hardship and go through an additional step called adversarial proceedings. Some student loans are treated like other types of unsecured loans. The CFPB says these include:
- Loans paid directly to the borrower for more than the full cost of tuition, books, and room and board
- Loans to attend unaccredited colleges, schools outside the United States, unaccredited business training and certificate programs, and other educational institutions that are not eligible for Title IV funding
- Loans taken out to cover fees and living expenses while the borrower studies for the bar or other professional exam
- Loans taken out by borrowers who attended school less than half-time
Bankruptcy should be a last resort
If you are having financial difficulties, bankruptcy may seem like an attractive solution. But it is important to remember that bankruptcy is a legal procedure with significant and lasting negative consequences.
Bankruptcy can appear on your credit report for seven to ten years after it is settled by the courts, depending on the type of bankruptcy. In addition to its immediate negative effect on your credit score, bankruptcy can make it difficult to obtain new credit, or obtain credit at favorable rates and terms, while still present on your credit file.
Could President Biden forgive private student loans?
Over the next several months, the Department of Education will work to extend up to $10,000 in student loan forgiveness to individual federal borrowers earning $125,000 or less ($250,000 or less for households). Eligible borrowers who have also received Federal Pell Grants can get up to $10,000 more, for a total of $20,000 in rebate.
But it is highly unlikely, if not impossible, that the federal government will largely forgive private student loan debt. Banks, credit unions, online lenders, and other private financial institutions provide private student loans, not the Department of Education.
STUDENT LOAN REFINANCING VS. CONSOLIDATION: WHAT’S THE DIFFERENCE?
Alternative to Private Student Loan Forgiveness
Failure to repay student loans can have serious consequences on your credit and finances. If you’re struggling to repay your private student loans, the only way to permanently change your rate and terms to something more manageable is to go through student loan refinance.
Benefits of refinancing include:
- The ability to streamline your payments by consolidating multiple student loans into one.
- The opportunity to get a lower interest rate this will save you money over the life of the new loan, especially if your credit has improved since you took out the first loan.
- The ability to lower your monthly payment by extending your repayment period (although this will likely result in a higher total interest cost).
- The possibility of repaying your loan earlier by refinancing over a shorter repayment period. You’ll save on interest over the long term, even though your monthly payments will likely be higher.
If you are considering refinancing your student loans, it is important to consider options from more than one lender. Credible, it’s easy to compare student loan refinance rates from multiple lenders in minutes, and it won’t affect your credit score.
