Private Student Loan Debt Relief: Practical Steps and Options

Private student loan debt relief
Key Takeaways:
  • Private student loans aren’t eligible for federal debt relief programs.
  • Private student loan borrowers do have other debt relief options available to them.
  • Debt consolidation and debt settlement are two types of debt relief private student loan borrowers can use.

Student loan debt relief has been a big topic in the news in recent years. Most of what you hear about involves federal student loans. But what about private student loans?

Most student loans are federal loans, so they get most of the attention. Still, there are many borrowers who got their loans through private lenders. 

There is also relief for private student loans. Options for private student loan debt relief aren’t as generous as those for people with government loans, but there is help available. 

Eligibility for private student loan debt relief

Who is eligible for private student loan debt relief? Potentially, anyone with a private student loan. 

If you got your student loan by applying with a bank or another lender rather than from the federal government’s student loan program, you have a private student loan. Federal student loans can be found on StudentAid.gov. Private student loans aren’t tracked on a single website but you could look at your credit report to find information about the loans you hold.

There are no formal limits to eligibility for private student loan debt relief, and your options will depend on your situation. Your credit score, earnings, assets, job history, and other debts and financial obligations are all likely to be considered. Generally speaking, you need to be able to show that you have a financial hardship in order to be eligible for relief.

Key debt relief options for private student loans

The debt relief options for private student loans are different from those for government loans. Private student loans aren’t eligible for government programs like income-driven repayment or Public Service Loan Forgiveness. 

Still, there are two key debt relief tools that are available:

Debt consolidation for private student loans

Debt consolidation involves new borrowing to pay off old debt.

Does it make sense to trade new debt for old debt? Depending on how you do it, debt consolidation can take care of a few things:

  • Reduce the number of monthly payments you make. 

  • Get a lower monthly payment or reduce the total interest you pay, or both, if you get a lower interest rate.

  • If you can find a consolidation loan with a longer payback period, you could get a lower monthly payment.

Here are some ways you can borrow to consolidate and restructure private student loans:

All forms of borrowing have their pros and cons. Before borrowing, make sure you’ve looked at how the terms will affect you. This includes monthly payments, the repayment period, and the interest cost over the life of the loan. 

Compare the numbers with the terms of your current loan to see if debt consolidation will make your student loan burden easier to bear.

Debt settlement for private student loans

Debt settlement means a lender accepts less than the full amount you owe but considers it payment in full. The rest is forgiven. 

Why would a lender do that? Well, as they say, time is money. If a lender realizes you won’t be able to pay the full amount that you owe, they’d prefer not to waste time continuing to pursue those payments. It may be more cost-effective to accept a partial payment you can make instead of holding out for full payments you can’t.

This may be an advantage private student loans have over federal ones. You can’t negotiate away federal student loan debt, but you may be able to with private student loan debt.

You can try to negotiate a settlement with your student loan servicer yourself, or you can work with a professional debt settlement company. Experienced professionals have been through this process before. They might be able to negotiate a better outcome than you could get for yourself, as well as save you the time and stress of negotiating.

Debt settlement may impact your credit, but in the long run it could put you on a path toward rebuilding your credit and improving your financial future.

How to apply for private student loan debt relief

Before you apply for student loan debt relief, you need to figure out what type of solution will work for you. 

If you’re considering debt consolidation, look at loan terms to see what options are available. Make sure that the payments will be affordable and that the total cost will be worthwhile. You’ll also need to find out what credit qualifications the lenders require.

When you find a debt consolidation option that seems like a good fit, follow the lender’s application procedures carefully. Often you can do this online.

If debt consolidation isn’t a good option for your situation, you still have the option of debt settlement. 

Your loan servicer is a good place to start. Find out if they have any hardship programs that can help your situation. For instance, if you have become disabled, there may be a provision that addresses that situation.

Even if your loan servicer has no specifically defined relief provisions, talk to them.  Take a hard look at your finances and figure out what you might be able to afford. If you can outline this clearly for your loan servicer, they might show some flexibility. 

If this doesn’t work, consider working with a debt settlement professional to negotiate a payment reduction. Have them outline the likely costs, benefits, and impact on your credit before you sign off on any solution. A reputable debt relief company won’t charge you anything until they negotiate a solution and you approve it.

Success stories: Does private student loan debt relief work?

Negotiated debt settlement could lead to a compromise that both you and your lender can live with. Based on anecdotes shared on Reddit, borrowers have been able to successfully negotiate with their student loan lenders to have 50% or more of their debt forgiven.

Debt relief can prevent your student loan problems from dragging on for years. That can allow you to take steps toward a better financial future sooner.

Frequently Asked Questions

Are private student loans forgiven after 25 years?

No. This kind of forgiveness is available for federal student loans, but not private ones. Private student loan debt forgiveness is available only if you negotiate it.

What are private student loan consolidation interest rates?

If you consolidate debt, you’ll pay the market rate for the type of consolidation loan you choose. Interest rates can and do change daily. Unsecured personal loans tend to have a higher interest rate than home equity loans. But you can’t’ get a home equity loan unless you’re a homeowner with sufficient equity. Rates will vary over time and depend on your credit situation.

Are private student loans eligible for income-driven repayment plans?

No, income-driven repayment is a program for federal student loans. However, you may be able to negotiate something similar for a private student loan. If your income is too limited to make your scheduled payments, you may be able to work out a more affordable repayment plan. You may have to show the lender proof of your income and other debts.