Student loan forgiveness is a hot topic these days given the rising cost of tuition and other fees for college.
Borrowers with federal student loans have several options for forgiveness when they meet certain requirements. For instance, if you work in the public service sector, you may be eligible for the Public Service Loan Forgiveness program if certain requirements are met.
In addition, federal student loan borrowers who utilize income-driven repayment plans, like the Income-Based Repayment Plan, may also have access to loan forgiveness after making several years of qualified loan payments.
While some of these programs are well known and utilized, private student loan forgiveness is less common.
Private student loans do not offer the same protections and provisions as federal student loans, including forgiveness. However, there are some options for private student loan forgiveness, typically under unique circumstances or with specific private lenders.
Lenders That Offer Private Student Loan Forgiveness
Although not many private lenders offer forgiveness, there are a handful that do if certain requirements are met or specific activities take place such as death or permanent disability of the borrower.
That being said, there are no private student loan companies that offer forgiveness similar to the federal student loan forgiveness programs.
Instead, private lenders including Citizens Bank, Discover, Sallie Mae, and SoFi, allow for a full discharge of your balance when you pass away or if you have a permanent disability.
However, you should know that if you have a cosigner on your private student loan, he or she may still be responsible for loan payments, depending on the lender. Some lenders, like Sallie Mae, will not require the cosigner to make the remaining payments, while others may.
It is important to understand how your specific lender deals with requests for loan forgiveness and if they are even willing to entertain your request. If you think your lender may offer loan forgiveness, get in touch with them directly to fully understand the requirements for qualifying, and what forgiveness may mean for you or your cosigner moving forward.
Other Cases in Which Your Private Student Loans May Be Forgiven
Fraudulent and Predatory Lending Cases
There are some cases where fraudulent or predatory lending by a private student loan lender may mean you are eligible for loan forgiveness. From September 2016 through August 2017, the Consumer Financial Protection Bureau received an estimated 7,700 complaints about private student loans, including on fraudulent and predatory lending practices. These complaints ranged in severity, but included false advertising in terms of the benefits and repayment options of loans, misapplying payments, and servicing errors.
If a private student loan provider is guilty of predatory lending, borrowers may be eligible for loan discharge. However, this requires following the legal guidelines of the state where the borrower resides. It can be both time-consuming and costly to go through the court process to get relief from fraudulent student loan lenders, but it is possible.
Lender is Unable to Verify Debt
If a private student loan lender is not able to validate the debt of a borrower, the loan balance may ultimately be forgiven.
In most cases, debt verification is required during the process of responding to a collection account for defaulted private student loans. If the borrower requests that the debt collection agency validate the student debt, including the date of origination, the balance, and other details specific to the loan in question, the collection agency must provide it to collect on the debt.
If it cannot validate or verify the information because of missing paperwork or inaccurate records, the account cannot be collected and the debt may be forgiven.
Private Student Loan Forgiveness Alternatives
If you are ineligible for private student loan forgiveness, there are a few alternatives you can look into. Keep in mind that you may not be eligible for each and these alternatives may not be the best financial decision for you depending on your situation.
Refinancing Private Student Loans
Refinancing private student loans is not a solution that leads to debt forgiveness but it is a strategy for making your student loans more affordable. With private student loan refinancing, creditworthy borrowers can take out a new loan with a different lender that pays off old private student loans. This has the potential to benefit a borrower in a few ways.
The main goal of refinancing is to receive a lower interest rate. If you have a strong repayment history, high credit score, and steady income, you may qualify for a lower interest rate that will help you save on repayment depending on the new repayment term you select.
You may also have the opportunity to extend your repayment term if you wish. A longer loan term can provide a lower monthly payment, but it may ultimately cost more over the life of the loan depending on how much lower your new interest rate is.
If you are considering bankruptcy as a way to get out from under your private student loans, you may be in for an unpleasant surprise. Filing bankruptcy can wipe out nearly all other forms of consumer debt, but private student loans are hard to include.
It is difficult to declare bankruptcy on private student loans unless you can prove a serious, undue financial hardship. This requires you to show the court that paying your private loans is causing you unmanageable difficulty in your financial life. Essentially, you are unable to provide for the basic things you need because of your monthly payments. If you can prove this, your loans may be forgiven.
When bankruptcy seems like an option, consult with an attorney to know what you are up against in court. They can provide insight into how successful your undue hardship claim may be and if forgiveness is a real possibility given your circumstances.
Defaulting and Settling Debt
One potential solution some borrowers think about when struggling to pay for their private student loans is defaulting on the debt. Defaulting means you simply stop paying what is due and wait for the lender to come after you for what is owed. With other forms of debt, taking this approach may lead to an opportunity to settle the debt for a lower amount than originally owed, but many private student loan lenders are not the same.
Private student loan debt does not involve any sort of collateral, meaning a lender has no recourse except legal action to recoup some of its losses due to default. This means you as the borrower may be up against a slew of lawsuits, court actions, and judgments if you do not pay back what you borrowed, plus interest and fees.
Instead of clearing your debts, defaulting on private student loans creates more of a financial headache for you. Your credit report will take a significant hit, you likely won’t be able to get access to affordable credit in the future, and you may still be obligated to pay your owed balance.
Private student loans can be a smart way to cover the funding gap for education expenses when federal loans and other financial aid options aren’t enough. Unfortunately, getting loan forgiveness for private loans is not something that is readily available to borrowers, even if you are struggling to keep up with your student loan payments.
If you believe fraud or deception was involved in receiving or servicing your loan, you may have a case for forgiveness through the courts. Undue financial hardship may also allow you to discharge your private student loan debts through bankruptcy.
However, your best bet is to find a way to better manage your student loan repayment. Consider your options for refinancing to lower your cost of borrowing or to extend your repayment term, and be sure to contact your loan servicer to see what specific repayment programs they have for helping you repay your debt.