How to Get Forgiveness for Private Student Debt
In 2019, there are more opportunities for receiving Private Student Loan Forgiveness than ever before, so you can safely ignore anyone claiming that there’s no help available to you.
Why? Because over the past year, the Federal Government has gone on a rampage attacking private schools, private lenders and private student loan servicing companies, filing lawsuit after lawsuit against them, forcing them to close shop, offer refunds and extend forgiveness benefits to millions of Americans across the country.
There have been lawsuits initiated by the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC) and the Department of Education (DOE), all of which signal that things are about to change for the private student loan industry.
With that said, major reforms remain pure speculation at this point, so let’s focus instead on the here and now, and let’s explore the private student loan forgiveness benefits programs currently available today.
2019’s Best Private Student Loan Forgiveness Programs
Currently, the easiest way to get rid of your private student loans is to qualify for one of the following forgiveness benefits programs::
- The Borrowers Defense Against Repayment Program
- The Navient Student Loan Forgiveness Program
- The Closed School Discharge Program
- The Corinthian Colleges Student Loan Forgiveness Program
- The ITT Tech Student Loan Forgiveness Program
- The DeVry Student Loan Forgiveness Program
- The Aequitas Capital Student Loan Forgiveness Program
- The National Collegiate Student Loan Forgiveness Program
- School-Specific Loan Forgiveness Programs
- Private Loan Consolidation Programs
- Private Loan Modification Programs
- Private Loan Bankruptcy Discharges
- Choosing To Default on Your Loans
Now, while I’m going to explain each of these programs in detail, you do need to keep in mind that there are thousands of scam artists floating around trying to take advantage of people pursuing these benefits.
In fact, after you’ve figured out which program you want to pursue, I’d recommend reading my page about Student Loan Forgiveness Scams to make sure you know how to spot a scam before you get nailed.
But Before We Get Into Details…
Let me offer you one quick piece of advice – the best way to deal with your private student loans is really NOT to try to get them forgiven, because the odds of that happening are incredibly low.Instead, what you should do is call my partners at McCarthy Law PLC; a group of attorneys who specialize in dealing with PRIVATE Student Loans. They're the only company who can significantly reduce your private debt and lower your monthly payments, no matter how much you may owe or how long you've been in default.
How do they do it? First, they negotiate with your lender to settle your private debt for around 40% of whatever you currently owe by promising that you'll pay off the entire settled amount in a single, lump-sum payment.
Don't have 40% sitting around in cash? Don't worry! They'll get you a new loan for the amount your lender settles on, allowing you to pay off the settled loan in its entirety, restoring your credit, and reducing your monthly payments.
McCarthy Law is the only company I trust to help my readers with Private Student Loans, but please DO NOT CALL them if you only have Federal loans, because they won't be able to help.
To get McCarthy's help with your Private Student Loans, call them at 1-877-317-0455.
1. The Borrowers Defense Against Repayment Program
The single best way to get rid of your private student loan debt is to challenge the nature of it’s existence by proving that you never would have taken the loans out in the first place had you not been lied to, scammed, or promised something you never received by the school, lender, or student loan servicing company.
The Borrower’s Defense to Repayment Program requires you to follow a complex legal process, but one that could have 100% of your debt forgiven, so it’s worth looking into.
To get your Borrower’s Defense Against Repayment application approved, all you need to do is prove that your school or lender lied to you in some way, like via false advertising or making deceptive claims, promising a certain job title, salary, or other expectation of some sort, or doing something else that violated State or Federal law, and which was instrumental in convincing you that it was a good idea to borrow that money in the first place.
Qualifying for a Defense to Repayment Discharge
There are four major ways to prove that your private student loan debt should be considered “invalid”, and thus forgiven under the Borrower’s Defense to Repayment Program:
- If you’re been making payments on your private debt for years, but the balance isn’t going down
- If you’ve been taken advantage of in some way by either the school you attended, your lender, or your loan servicer
- If you attended a school that made claims about the value of your education program that cannot be proven (for-profit schools like Corinthian Colleges, ITT Tech, and DeVry have been slammed on this one)
- If your school or lender included misleading claims or statements in their marketing messages (basically, false advertising)
Again, Borrower’s Defense to Repayment discharges involve a complicated process, but one that you can complete entirely by yourself, and which people with a background in research, writing and especially law will probably want to do on their own.
But You Should Consider Getting Help…
However, if you’ve never been involved in this sort of stuff, have no real aptitude for it, and are concerned that you may screw up your application, then I’d highly recommend hiring an outside expert to help you get your information put together and submitted.
And again, my favorite people to help with this kind of stuff are the Private Student Loan Relief Helpline, who you can reach by calling 1-866-530-9946.
Read my page about the Borrower’s Defense to Repayment process for additional details on how this excellent program works.
But do keep in mind that it can take literally years to hear back about your application, so it’s important that you don’t screw it up on your first attempt, and you’ll want to pay someone like the Helpline for assistance to increase the odds of receiving an approval.
2. The Navient Student Loan Forgiveness Program?
Earlier this year, the Consumer Financial Protection Bureau (CFPB) launched a multi-prong lawsuit against Navient, accusing them of committing some seriously illegal activity, including:
- Failing to apply or allocate borrowers payments correctly to their accounts
- Obscuring information that consumers needed to maintain lower monthly payments
- Coaxing borrowers to pay more than they had to on their loans
- Hurting the credit of disabled borrowers, including veterans who’ve been severely injured
- Lying to private student loan borrowers about requirements for releasing co-signers on their loans
And along the same lines of the Borrower’s Defense Against Repayment Program, the coming Navient Student Loan Forgiveness Program should offer a similar process, and similar results: complete forgiveness for proving that Navient violated some State or Federal law in the way they handled your student loan servicing.
To find out what the program may look like (it hasn’t been fully unveiled yet), please visit my page about the Navient Student Loan Forgiveness Program.
3. The Closed School Discharge Program
The Closed School Loan Discharge Program is an excellent option for anyone who was attending a school that shut down before they were able to complete their degree.
This program is an absolute-guarantee for those borrowers with Federal loans, and a “maybe” shot at getting a discharge if you’ve got Private loans.
To get approval for a Closed School Loan Discharge, you have to be able to prove that you were attending the school (actively enrolled as a student, taking courses, or on some sort of break, but still pursuing your higher education credentials) at the time that the school shut down.
It’s not that difficult a process, however, as all it requires is getting transcripts from the school you attended, and submitting those to whoever services your loans.
And it’s a huge opportunity for anyone that is really stuck in the situation of having invested time and money toward a degree program or other credential that literally could not be completed since the school shut down smack-dab in the middle of your work.
For a comprehensive review of this program works, please visit my page about Closed School Student Loan Discharges.
4. The Corinthian Colleges Student Loan Forgiveness Program
When Corinthian Colleges shut down (Heald, Everest, and Wyotech), tens of thousands of students across the country were left with tons of debt, and no chance for completing their degrees.
As a result, protests erupted across the country, with thousands of former students publicly demonstrating that they would refuse to pay back their loans, and this sparked a bit of a panic across the student loan industry, and Congress.
Fortunately, the United States Government, the Corinthian Colleges company, and the student loan servicers came together to produce what’s commonly called the Corinthian Colleges Student Loan Forgiveness Program, which provides a route for having your Corinthian-related public and private loans forgiven.
For details on how to use the Corinthian forgiveness program, make sure to visit my page about it here.
5. The ITT Tech Student Loan Forgiveness Program
The ITT Tech Student Loan Forgiveness Program was the second major forgiveness program introduced to cover students left in the breeze when another gigantic, nationwide for-profit school shut its doors unexpectedly, leaving tens of thousands of people with a ton of debt, and no chance of finishing their degree.
People who qualify for the forgiveness benefit are eligible to have up to 100% of their outstanding loans forgiven, but eligibility conditions require that you were an active student enrolled at an ITT Tech program within 120 days of the date that your school shut down.
To find out how this program works, and to see if you’re eligible to apply for it’s private forgiveness benefits, please visit my page about the ITT Tech Student Loan Forgiveness Program.
6. The DeVry Student Loan Forgiveness Program
The DeVry Student Loan Forgiveness Program offers $100,000,000 in student loan relief and forgiveness benefits, with options for both Federal and Private borrowers to receive financial assistance.
To qualify for the benefit, you must have attended DeVry between 2008 and 2015, the period of time the Department of Education has proven the school misled students about graduates’s job prospects, salaries, etc., and you will need to fill out some paperwork to prove your student status, outstanding loan debt, etc.
If you attended DeVry during the covered period, then you should have received a letter from the school notifying you of your eligibility for the benefit.
To get the details on exactly how this program works, please visit my page about the DeVry Student Loan Forgiveness Program.
7. The Aequitas Capital Student Loan Forgiveness Program
Aequitas Capital was a massive Hedge Fund that got involved in student loan lending by combining forces with Corinthian Colleges, but in a really immoral way; the school and hedge fund colluded to scam tens of thousands of Americans out of nearly $200,000,000 in crummy educational services.
Fortunately, 12 State Attorneys General and the Consumer Financial Protection Bureau launched lawsuits against the now bankrupt Hedge Fund, and are in the process of reaching a settlement agreement that will see that $200 million returned to the borrowers who were scammed by Aequitas.
To find out exactly what’s going on with the case, and to get an idea of whether or not you might qualify for the benefits, and how to apply for them, please visit my page about the Aequitas Capital Student Loan Forgiveness Program.
8. The National Collegiate Student Loan Forgiveness Program
The National Collegiate Student Loan Forgiveness Program is an example of a student loan servicer-driven benefits package, and one of the biggest financial forgiveness benefits programs in history.
Nearly $5,000,000,000 (that’s 5 BILLION) worth of private student loan debt may be entirely forgiven thanks to a clerical error; the loss of some documents which clearly indicate the National Collegiate Trusts actually owns the debt they’re trying to collect from tens of thousands of Americans.
Since they can’t find the paperwork that proves they really do own this debt, they can’t convince a court that the borrowers actually need to pay back the money they’re attempting to get, and it’s possible that anyone with a loan originating from the National Collegiate Student Loan Trusts is going to get all their loans forgiven entirely.
To find out about the details of the program, see if you qualify, and learn how to apply for the forgiveness benefit, please visit my page about the National Collegiate Student Loan Forgiveness Program.
9. School-Specific Private Loan Forgiveness Programs
As I’ve already shown above, there are excellent private student loan forgiveness programs available to students who attended specific schools; typically, large, for-profit schools who have been proven to have done some sort of false advertising, making misleading claims about the value of their educational programs, promising students that they’d earn some certain amount of money after graduating, or doing some other thing that violated Federal or State laws.
The three biggest school-specific private student loan forgiveness programs on offer were created for students who attended a Corinthian Colleges School (Heald, Everest and Wyotech), ITT Tech, and DeVry, but every couple months, another big school goes bust and everyone gets access to additional refunds and forgiveness benefits.
Unfortunately, just because you attended one of the schools that ends up having to offer forgiveness doesn’t mean that you’ll qualify for any of the benefits, because they’re usually tied to pretty specific eligibility requirements, like attending during a certain time frame.
I keep a close eye on news relating to these sorts of programs, and update my site whenever a new school goes down, so be sure to check back regularly for updates on which schools may end up having to refund students in the future.
It’s highly likely that we’ll continue seeing big, for-profit, private schools goes belly up in the years ahead, so while I wouldn’t hold your breath waiting for benefits, you can be sure that at least some Americans are about to hit the jackpot and have their loans forgiven.
10. Private Student Loan Consolidation Programs
If you need Private Student Loan Debt Relief, then a Private Student Loan Consolidation might just be your best bet, especially if you don’t qualify for any of the Forgiveness Programs I’ve outlined above.
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 other types of loans, because they’re an extremely effective way to make your debt more affordable.
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 thus lower monthly payments.
Loan consolidation is similar to loan refinancing, but always involves taking multiple loans and turning them into a single, larger loan.
The Dangers of Consolidation
There is a downside to student loan consolidations, however, in that there’s a huge risk that you could lose access to certain benefits if you do it in the wrong way.
For example, one of the biggest no-no’s to student loan consolidation is mixing private loans with Federal loans, which is a terrible idea because it destroys your ability to qualify for benefits on your Federal loans.
Also, just like there are tons of loan forgiveness scams, loan consolidation is another target of con men, so you will run into all sorts of offers that are far too good to be true, and you need to be extremely careful about picking a partner to consolidate your loans.
If you are really intent on consolidation, then my recommendation is to use the Student Loan Relief Helpline, as again, they’re the only company in the industry that I trust. You can reach them by calling 1-866-530-9946.
Consolidation: Don’t Mix Private Loans With Public Loans!
As I mentioned above, make sure you don’t combine Private loans with Public loans when going through the consolidation process, because doing so could destroy all chances of qualifying for the many amazing Federal Student Loan Relief Benefits packages on offer.
Unless you’ve got multiple private loans, I would avoid looking at consolidation as an option, and consider going through other means to deal with your outstanding debt.
Instead, look to loan refinancing and loan modification programs, which are typically available for those people having trouble making their monthly payments, or simply call the Private Student Loan Relief Helpline to ask them for assistance in dealing with your debt.
Again, you can reach the Private Student Loan Forgiveness Helpline by calling 1-866-530-9946.
As I mentioned earlier, there is a cost associated with using their service, but the initial phone call is free, and you will be able to ask a few questions of without having to spend any money, so it’s definitely worth giving them a shot at reducing your debt and your monthly payments.
11. Private Loan Modification Programs
One of the best ways to deal with loans that you cannot currently afford is to look into a Private Student Loan Modification Program, which will allow you to restructure your debt in some way, and which is likely to help reduce your monthly payments so that you can actually afford to make them!
Pretty much everyone with private loans is eligible for some sort of modification program, as they’re offered by virtually all student loan servicing companies, and come in a variety of forms and fashions.
Whether you need to reduce your interest rate (because you took out a loan when they were high, or when your credit was bad), want to extend the term of your loan (to stretch the payments out over a longer period of time), or do something else that could help drop your monthly costs, modification programs are really the first place to look for assistance when you run into financial trouble.
The only trick to loan modifications are that it requires your lender to approve whatever it is that you want to do, and that’s not always possible, as they’ll sometimes completely refuse to adjust their terms.
To find out if you’re eligible for a loan modification, first call your lender and ask them directly what they can offer to distressed borrowers. If you can’t get anywhere asking nicely, then consider getting the help of the experts at the Private Student Loan Relief Helpline, who can advocate on your behalf (for a fee of course).
Again, to reach the Helpline, simply call 1-866-530-9946.
12. Private Loan Bankruptcy Discharges
You don’t want to pursue a bankruptcy discharge unless you don’t have any other options, because filing for bankruptcy brings about all sorts of other financial problems, and because it’s no longer guaranteed to erase your private student loan debt entirely.
In fact, it’s pretty hard to get rid of private student loans by filing for bankruptcy, because it requires proving to a court that your loans are placing such an undue hardship on you that they’re literally making it impossible for you to afford basic necessities.
You’ll have to provide documentation clearly explaining that the costs of your loans are so expensive that they are don’t leave enough money for you to pay for food, shelter, clothing and healthcare for yourself and your family.
However, if you can prove that in court, to a judge, then he or she will have the option of wiping out your debt completely via a Private Student Loan Bankruptcy Discharge, and you’ll walk away from the bankruptcy without any more student loan debt.
I don’t want to make it sound like this is easy, so again, let me restate that this should be one of your last potential options, and should only be pursued if you truly have no way to ever pay back your loans, either because you make so little, or owe so much.
13. Choosing to Default on Your Loans
You don’t want to go this route either, 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 don’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 to happen!
Defaulting on your loan is not a realistic way to get private student loan help. In fact, in all but the absolute worst situations, defaulting on your loans simply makes your financial problems worse.
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, and it’s not a process that you want to explore unless it’s absolutely necessary.
Private Loan Forgiveness & Tax Liabilities
No matter what path you take toward forgiveness, one thing you’ll need to plan for is the impact of that forgiveness on your annual tax returns.
The key point here is that whatever amount of money you end up getting forgiven will have to be declared to the IRS as part of your taxable income for the year.
It’s a bummer, because this can get expensive quickly, but whenever you receive any sort of debt forgiveness benefit, the IRS requires that you count that benefit as taxable income.
The way it works is that you end up having to pretend like you made the amount of money that you got forgiven, and you’ll have to pay whatever percentage of taxes you pay for your regular income on that forgiven amount.
How Much Will I End Up Owing in Taxes?
As an example, if you had $10,000 in debt forgiven, you’d need to add that $10,000 to whatever you made for the year, report that to the IRS, then pay a percentage of the $10,000 in taxes. For most people, that’s a significant amount of money, since it could be 25%, 30% or even more.
Using the same numbers as above, your tax bill on the forgiven amount of money could end up being $2,500, $3,000, or more, and what’s worse is that the bill will come due all at once.
To find out exactly how everything works, make sure to visit my page about Student Loan Forgiveness and Taxable Income Laws.
I think this tax liability issue is going to devastate so many Americans that I’ve created a new website specifically to help people with their tax-related problems, called Forget Tax Debt.
On Forget Tax Debt, I cover all sorts of tax concerns, from Avoiding IRS Phone Scams to signing up for the IRS Fresh Start Program, offering the same sorts of information I provide here, but specifically related to tax issues.
If you’re having trouble with taxes, please be sure to visit Forget Tax Debt here.
Choosing The Best Path Forward
When it comes to private forgiveness benefits, there’s no easy way to decide which process to pursue, and whether or not the eventual forgiveness benefit will be worth the added cost to your taxes.
But one thing is pretty clear – at least to me. If you spend enough time researching the issues, running the numbers, and considering your options, you can arrive at the right answer, and then start working on dealing with your loans in the best possible way.
However, if you’re not the type of person who’s good at figuring this stuff out, then you may want to hire the assistance of an absolute expert in the industry to come in and do it all for you, especially if you’ve got a huge amount of debt on the line.
Here’s a quick breakdown that may help you decide whether to go it alone and take care of everything yourself, or to pay someone else to handle it all for you.
Option 1: Going it Alone
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 consulting 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.
Option 2: Using a Hired Gun
The second option is to enlist the assistance of a professional student loan relief expert, typically from one of the many available commercial 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.
This service does cost money, but it focuses on attacking the validity of your debt, literally challenging the debt collectors to prove that they have the right to demand payment from you.
Does this always work? Absolutely not, but if you call them and discuss your potential case, you should be able to get a pretty good feel or whether or not you’ve got a real chance to have your debt relief application approved.
You can reach the Private Student Loan Relief Helpline by calling them at 1-866-530-9946.
If you do 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, ask questions, and figure out 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. I promise that you CAN figure it out on your own, it just won’t be as easy or as quick as enlisting the help of an expert.
Recent History of Private Student Loan Forgiveness Changes
There’s been a lot of noise in this space for several years, but only recently has anything actually been done to make private student loans a little easier to deal with.
President Obama was the first President to tackle the issue head-on, but he only made so much progress, and now the reigns have been passed to Donald Trump, who will need to step up to the plate and deliver with some serious changes if we’re ever to climb our way out of the private student loan debt hole.
You can rest assured that I’ll keep tracking changes and reporting developments to the industry, and alerting you all to the best opportunities immediately as they emerge, so be sure to check back often for updates and new details about where we’re headed, and what’s available.
In the meantime, here’s a little bit of recent history regarding the private student loan debt industry.
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.
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’s always been unlikely that the Government would step in, simply because there are too many lobbyists preventing them from doing so.
The simple problem with private student loan debt 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, unless more lawsuits like the CFPB’s attack on Navient emerge, and more holes are poked in the dam.
Fortunately, I’m more optimistic about private student loan forgiveness than I’ve ever been, and I have a good feeling that the next few months and years are going to present some significant new opportunities for those of you struggling to deal with your private loan debt.
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.
I’m also still cautiously optimistic that President Trump’s Student Loan Reforms will include some sort of assistance for private student loan holders, though there’s no telling when his program will be announced, or exactly what it will entail, so don’t start holding your breath quite yet.
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