Repayment Options If You Need Private Student Loan Help

Is there any relief for private student loans? Unlike federal student loans, which are heavily regulated (in your favor), private student loan lenders don’t have as many rules.

Private student loan lenders can charge higher rates, making it harder for you to afford your payments. And if you run into problems, most lenders don’t offer as much help as federal student loans do.

If you’re struggling to make your payments—or even if you can’t pay at all—our research has uncovered several ways you can lighten the burden of your private student loans.

In this guide:

• If you need to pause your private student loan payments
• If you need to lower your student loan payments
• If you can’t make your payments

If you need to pause your private student loan payments

Your options to pause your private student loan payments may include the following:

Forbearance or deferment

Student loan forbearance and deferment refer to periods in which the lender reduces or suspends your loan payment for a specified time. Unlike federal student loans, which offer both, most private student loan lenders don’t differentiate between these terms. 

While a loan is in forbearance, interest continues to accrue on the outstanding balance. You will owe more on your loans and have a higher payment when forbearance ends, but it’s an option if you can’t make payments for a short time.

Forbearance options on private student loans are limited compared to federal student loans. If they’re available, the forbearance period is shorter, and you may need to pay a fee. For example, SoFi and Brazos offer forbearance for three months at a time, up to a year in total. 

In contrast, federal student loans offer forbearance for a year at a time, capped at three years. As long as you coordinate deferment and forbearance with your lender according to your loan agreement, it does not impact your credit score.

If you need to lower your student loan payments

Changing repayment plans for private student loans isn’t as easy as for federal student loans, but you may have four options to change your monthly payment amount.

Interest-only payments

Interest-only payments allow a borrower to pay just interest on the loan each month. The outstanding balance doesn’t fall or rise since you pay the accrued interest. 

Most of your minimum monthly payment goes toward interest during the first few years of repayment. So unless you’ve been making payments on your student loan for several years, the interest-only payment likely won’t be much lower than your standard payment. 

Certain private lenders, such as Sallie Mae, allow interest-only payments for a short time during specific situations, like while you’re finishing your medical residency. After all, if you’re making interest-only payments, you’re not making progress in paying off the loan.

Refinance your student loans

If you haven’t refinanced your student loans, this may be an effective way to reduce your monthly payments. 

If you qualify, it could allow you to lock in a lower interest rate or request a longer loan term. A lower rate on your loan can shrink your monthly payment, as can stretching your payments out over a longer period. 

If you’re considering refinancing, check with your lender to see if it offers this option. It’s also a good idea to shop around with different student loan refinancing companies to see what each can provide to help make your payments smaller.

Rate reduction programs

Most lenders offer small incentives for borrowers, including a rate discount if you sign up for autopay. Depending on your lender, this can lower your rate by 0.25% to 0.50%.

Some lenders, such as MPower and Custom Choice, offer other options, including a rate reduction or principal reduction with proof of graduation. 

Graduated payment plans

Graduated payment plans require small loan payments, often interest-only, in the first few years. The required payment increases at regular intervals to mimic the expected salary pattern of a new college graduate. 

However, most private lenders don’t offer graduated payment plans. If they do, they’re often limited to a specific time frame. 

For example, Sallie Mae offers a graduated repayment plan with many private student loan options, but only for the first year you’re repaying the loan.

If you can’t make your payments

Private student loan lenders don’t offer as many options if you can’t make your payments, but you may have two choices.

Discharge

Can you discharge your private student loans in bankruptcy? 

It is more complex, but it’s not impossible. You can appeal a court to discharge the debt in particular instances. 

Judges often use the “Brunner test” to determine whether your student loans are eligible for discharge if you can meet these three criteria:

• You’ve tried to work with the lender to make your payments.
• You can’t afford “minimal” living conditions with the loan payments.
• Your circumstances aren’t likely to change for the bulk of your loan term.

Judges sometimes interpret these three criteria differently. For example, a judge ruled in 2011 that a couple with low-wage but meaningful careers could discharge their loans in bankruptcy because their situation wasn’t likely to change. 

In another case, however, a judge ruled a borrower with alcoholism was not eligible to discharge their student loans because they should be able to get better and repay the loans. 

Ticking the boxes for the Brunner test according to a judge’s satisfaction is tough. One study in the Duke Law Journal pinned the success rate at 0.1%.

Settle the debt

It may be possible to settle your debt—i.e., offer to pay a lump sum in exchange for the lender releasing you from the rest of your loan obligation. Most private student loan lenders only accept large lump sums in exchange for a settlement.

It’s never wise to default on your debt on purpose. Getting behind on your payments can cause severe damage to your credit score that takes years to fix. But if you are behind, this gives you leverage in negotiating a settlement. 

Your lender may be more willing to work with you if you’ve already defaulted on the loan than if you’re current. After all, debt collection is expensive for the lender, so many will accept a smaller guaranteed payment now rather than an unknown amount later. 

If you haven’t made payments on your private student loan for a while, your debt will likely be transferred to a collections agency. You can also try negotiating with the collections agency, which may be willing to accept a smaller settlement offer than your original lender.