As of January, 2016, there are at least 850,000 privately funded student loans in America, totaling about $140,000,000,000 dollars ($140 Billion) and about 15% of our total outstanding student loan debt.
Hundreds of thousands of Americans have sought private student loan help, with a huge percentage of that population seeking out private student loan forgiveness, but ending up incredibly disappointed.
While there are a slew of Federal Student Loan Forgiveness Programs that allow debt to be completely wiped out, there aren’t any true “forgiveness” programs available to those who hold private student loan debt.
Fortunately, even though debt forgiveness itself may not be available, there are a variety of ways that you can get effective debt relief for private student loans, some of which could stand to save you tens of thousands of dollars.
Here’s an analysis of the existing debt relief programs available to those with private student loans, as well as a look into what might become available in the near future.
Private Student Loan Debt Relief
If you’re having trouble making monthly payments and you need help paying off your private student loan debt, then you’ll want to start by looking into the following opportunities:
- Loan Forgiveness Programs
- Loan Consolidation Programs
- Loan Modification Programs
- Filing for Bankruptcy
- Choosing To Default
There are two options for pursuing private student loan debt relief:
- The first option is to do all the research yourself, determine what’s available, then start filling out applications and literally applying for whatever benefits you can find. This is often a slow, laborious, and frustrating process, which many people would rather avoid, and it’s the reason that the private student loan debt consolidation industry has skyrocketed in growth over the last several years. If you do choose to go this route, my website will be an invaluable tool for you to research available benefits and assistance programs, so make sure that you continue to read through this page and check out the other pages in the Private Relief section of the site. If you have questions about what’s possible, please feel free to ask away in the comments section below and I’ll do my best to get you a response within a day or two.
- The second option is to enlist the assistance of a professional student loan relief expert, typically from one of the many available consolidation companies now servicing borrowers, and to have them do the research and paperwork on your behalf. This option can save a ton of time and frustration, but it also comes with an associated cost (typically several hundred dollars for completing research, processing paperwork, and determining exactly what will work best for you). I like this option for those people who aren’t severely pinched when it comes to money, or for those who don’t have the time or inclination to perform all the required research to determine what benefits and strategy will work best for them. If you do choose to go this route, I suggest calling the Private Student Loan Relief Helpline, which is an organization of experts focused on assisting people with private student loan debt, and who can help you figure out the best way to get out of debt quickly and easily. You can reach the Private Student Loan Relief Helpline by calling them at 1-866-530-9946.
If you choose to complete the research on your own, please don’t expect to finish everything in an hour or two! You’re going to need to read, read, read, and ask questions, in order to determine what’s available, and what will work best for you. Read through the content on my site, ask questions in the comments section below, and remain diligent and dedicated to determining what’s going to work best. You CAN figure it out on your own, it just won’t be as easy as enlisting the help of an expert.
Private Student Loan Forgiveness Programs
Unfortunately, at the time of this writing there are no widely available “forgiveness” programs for private student loans.
Depending on your lender, you might have access to specific forgiveness programs, but the availability of that will depend entirely on who your loan came from, what the terms of your loan are, and how bad your financial situation is.
To find out if you have access to any private student loan forgiveness opportunities, you’ll need to contact your lender directly, or contact one of the private student loan debt consolidation companies, and request eligible options from them.
Private Student Loan Consolidation Programs
If you need Private Student Loan Debt Relief, then a loan consolidation program is probably your best bet.
Loan consolidation programs have been around a long time, and even before the rise of student loan debt, they were extremely popular for people having trouble paying off credit card debt, mortgages and loans of other types.
The way that student loan debt consolidation works is that you take multiple student loans and combine them into a single loan from a single lender, often resulting in a lower interest rate, more simplified payment scheme, longer loan repayment term and lower monthly payments.
It’s similar to a refinance, but always involves taking multiple loans and turning them into a single, larger loan.
Unfortunately, Private Student Loan Consolidation Programs aren’t compatible with public student loans, so unless you’ve got multiple private loans you may not have access to any loan consolidation programs.
However, you may have access to loan refinancing or loan modification programs, which are typically available for those people having trouble making payments.
Again, if you do choose to go this route, I would highly recommend working with the people at the Private Student Loan Forgiveness Helpline, who are experts at handling private loan debt. And again, you can reach them by calling 1-866-530-9946.
As I mentioned earlier, there is a cost associated with using their service, but the phone call is free, and you should be able to ask a few questions of them without having to spend any money, so it’s definitely worth calling before you write it off as being “too expensive”. You may be able to get some extremely valuable information entirely for free!
Private Student Loan Modification Programs
Modifying your student loan is another great way to reduce your financial liabilities, reduce monthly payments and take some of the sting out of your student loan debt.
The problem with getting a loan modification is that it has to come from your lender, meaning that you’ll have to convince them that it’s in their best interest to cut you some slack.
While there aren’t any official private student loan forgiveness programs, you may be able to get a bit of loan forgiveness if you’re having serious trouble coming up with the money for your monthly payments.
To find out what’s available, you’ll need to contact your lender, let them know that you’re going to be unable to make future payments, and negotiate for a better deal.
This isn’t necessarily an easy process, but it can be extremely lucrative. Hundreds of thousands of people who’ve faced the same financial problems that you do have gone this route and been able to get parts of their student loan debt written off entirely, had their loan terms extended to reduce their monthly payments and/or gotten interest rate decreases to reduce their total liability.
Private Loan Forgiveness Via Bankruptcy
You don’t want to do this unless you have to, because filing for bankruptcy brings about all sorts of other financial problems, but most of all because it’s no longer guaranteed to erase student loan debt entirely.
In fact, it’s pretty hard to get rid of student loan debt by filing for bankruptcy, because it requires proving to a court that your loans are placing an undue hardship on you. How do you go about doing that?
It is possible to get real loan forgiveness from a Private Student Loan Bankruptcy, but you’ll have to prove that your student loan debt places an “undue hardship” on your life, basically meaning that it’s interfering with your quality of life and ability to provide basic needs for yourself and your family (food, shelter, clothing, etc.).
If you can prove that your private student loans are basically driving you into crushing poverty, then it’s possible that you’ll be able to get them discharged, but it’s honestly not that easy, especially as courts have become wary of people running up huge loan debts that they didn’t really need to take out while planning to get rid of them via bankruptcy all along.
Defaulting on Your Private Student Loan(s)
Believe me, you don’t want to go this route, and for a variety of reasons.
Private student loans are similar to other forms of unsecured debt, like credit card debt, medical debt and any other loan that doesn’t include collateral, but they differ in one important way: defaulting on them opens you up to an array of legal liabilities.
If you Default on Private Student Loan Debt, your lender has what’s called “a cause of action” against you for breach of contract. That means they can sue you for failing to pay back your student loan, and if they win a judgment against you in court, they’ll be able to garnish your wages, have a levy placed on your financial accounts or even get a lien attached to your property. You do not want this.
Defaulting on your loan is not a realistic way to get private student loan help. In fact, in all but the absolute worst situations, default typically ends up causing major problems for your total financial health.
Long before you consider defaulting, be sure to look into the other options for getting help with your private student loans. Try a loan consolidation or loan modification program, or even consider filing for bankruptcy, because default is not going to go down easy.
Hope For the Future
Fortunately, it does look like some help is on the way for those who need help with private student loan debt, as a variety of organizations have been created specifically to provide assistance, or advocate for providing assistance, to those with privates student loans.
Additionally, Congress has been presented with quite a few bills seeking to change laws and regulations in order to provide more effective debt relief to those with private student loans, some of which would provide incredible new opportunities.
Here are some of the organizations, proposals and bills created to present opportunities to those in need of relief from private student loan debt:
The Consumer Financial Protection Bureau
President Obama’s Administration created The Consumer Financial Protection Bureau (CFPB) and assigned them with the duty of making “markets for consumer financial products and services work for Americans”, which means that they’re supposed to fix problems with mortgages, credit cards and private student loan debt.
In fact, Congress actually passed a law requiring the CFPB to look into the student loans industry and start making regulatory recommendations for resolving problems that existing law is creating for borrowers.
During their initial review of the industry, the CFPB collected and published around 2,000 complaints gathered from consumers who had problems with getting or paying back private student loans, creating a great deal of new visibility for the issues that plague this industry.
Early Findings Showing Significant Problems:
- Information Problems – Borrowers with private student loans reported being confused about which student loans were worth taking and how much they would actually owe after graduation. Some borrowers were even surprised that their student loans were privately-backed, rather than provided by federal subsidies.
- Excessive Debt – People with private student loans reported that they have become completely overwhelmed by the excessive debt racked up by their student loans, especially from rising interest rates. The CFPB believes that part of the problem is a lack of sufficient disclosures, exacerbated by a weak economy, significant unemployment and underemployment, especially among recent graduates.
- Complicated Billing Practices – People responding to the survey reported that they wanted to pay back their private student loans, but that when they ran into tough financial times, there weren’t many options for receiving help with their loans in the form of repayment flexibility (refinancing interest rates, getting loan modifications for longer repayment terms, etc.).
As a response to the complaints that they collected, the CFPB issued a draft of proposed student loan disclosure forms that it wants the industry to use, but there’s currently no regulatory law in place that forces any lenders to put these into place.
The suggested disclosure form contains some important information that lenders have been allowed to leave out of their existing disclosures, like the interest rate on the loan and the eventual monthly payment borrowers will face, which should dramatically reduce confusion for borrowers.
The Campus Progress Proposal
Campus Progress, now called “Generation Progress“, proposed that the Federal Government could offer significant debt relief for private student loans by purchasing private student loans to lower interest rates, increase loan forgiveness and loan modification opportunities and essentially save those borrowers who are in terrible economic situations from further financial hardship.
Unfortunately, this plan would have been extremely expensive, and the CFRB rightly argued against it (though it sounds great to those of us with massive student loan debt), pointing out that a program like this would fuel riskier lending practices and continued abuse by rewarding those lenders who offered the riskiest loans, providing no future incentive for any lenders to behave in a responsible manner.
The Student Loan Forgiveness Act
In March 2012, the Student Loan Forgiveness Act (H.R. 4170) was introduced by Representative Hansen Clarke (Democrat, Michigan), which proposed some excellent ideas for improving federal student loan debt relief, as well as presenting an excellent opportunity to receive debt relief for private student loans.
Here are the major tenets of the bill:
- Consolidation Options for Private Student Loans – The bill proposed that some private student loans would be eligible for consolidation with federal student loans. Though the bill includes a large range of restrictions, just the idea that any private student loans would be allowed to get consolidated with federal loans would be a paradigm shift for the industry, and a welcome one at that.
- Improved Forgiveness for Federal Student Loans
- Interest Rate Protection for Federal Student Loans
Unfortunately, this bill hasn’t been passed and it doesn’t seem likely that it will receive any additional support any time soon either.
The student loans and financial services lobby is extremely powerful, wielding a great deal of influence over Congress via massive campaign contributions for those representatives that toe the industry line, and they don’t want this bill (or any other like it) to get passed.
The Student Loan Fairness Act
In March, 2013, Congresswomen Karen Bass (Democrat, California) proposed new legislation that would offer the 10-10 model available for borrowers with federal student loans, which caps monthly payments at 10% of their discretionary income, and offers full loan forgiveness after 10 years (120 months) of qualified payments, including debt forgiveness for any taxes that remained due on the left over debt.
Furthermore, and this is a huge one, the Student Loan Fairness Act would allow unemployed people with private student loan debt to defer their payments (without facing any penalties) until they were able to find a new job, and it would also allow those with private student loans to convert them into federal loans, affording them with full access to the excellent suite of available federal loan relief programs.
The Private Student Loan Bankruptcy Fairness Act
The fact that private students loans can’t be discharged via bankruptcy has rubbed Americans the wrong way for some time now, and support for changing the law to allow for it has never been higher.
A variety of efforts are currently underway to change the status quo here and allow for private student loan forgiveness via bankruptcy, including:
- Bill HR 532 – Proposed by Congressmen Danny David (Democrat, Illinois) and Steve Cohen (Democrat, Tennessee), this bill would change bankruptcy law to allow judges to handle private student loans the same way that they deal with any other form of debt from private lending institutions (meaning that it could be discharged via filing for bankruptcy)
Unfortunately, the CFPB, which is supposed to look out for borrowers interests, has taken an opposing stance to revising bankruptcy laws in this way, and is arguing that allowing for that would create another debt crisis like the one caused by sub-prime mortgages just a few years ago.
They even issued a report in July of 2012 claiming that allowing student loans to be discharged via bankruptcy would be the final nail in the coffin to our country’s economic recovery, and virtually guarantee the beginning of another major economic depression.
Credit Score Rehabilitation
Failing to repay student loans on time leads to terribly negative consequences for people’s credit scores, just like missing mortgage payments or credit card payments.
However, the CFRB has argued that new financial regulation should be created to help rehabilitate the credit scores of borrowers who had issues repaying their private student loans on time, once those loans were fully paid off.
A similar system is already in place for borrowers with public student loans, and it seems entirely reasonable that this system could work quite well if it were extended to cover private student loans as well.
The CFRB definitely appears interested in making that happen, but like we stated earlier, don’t expect it to be an easy fight as the financial services lobby is quite powerful.
Unfortunately, I don’t see much light at the end of the tunnel here.
While it would be great to see some new regulations for the private student loans industry, or new laws that offer debt relief opportunity to borrowers with private student loans, it seems unlikely that Congress will pass any legislation of this type.
The simple problem is that the financial services industry is far too powerful, completely opposed to reform and unwilling to negotiate on something that has made them a massive profit, and will continue to profit huge profit margins in future years.
Attacking private student loans is attacking their golden goose, and as a result, it’s unlikely that we’ll see any major changes to the industry at any point in the near future.