Student debt is a significant issue in the lives of young Americans. Each year, the educational debt grows 6 times faster than the whole economy, which is why the government pays huge attention to it. Even in the electoral campaigns, one can frequently hear proposed solutions to this problem. The government tries to provide solutions through federal assistance programs, forgiveness, discharges, repayment plans, etc. However, most of these programs do not cover private debt. Private Student Loan Forgiveness is almost impossible to get. Yet, borrowers can utilize their alternatives to reduce debt obligations or receive better loan terms.
Compared to federal loans, private educational debt can be lower, but we cannot still ignore it. The latest statistics show that the national debt for private student loans is around $135 billion. It means, approximately 2.4 million student loan borrowers currently struggle with their private loan repayments.
What Are the Private Student Loan Forgiveness Options?
Unfortunately, the best forgiveness programs that can relieve you from the whole obligations are only available to federal loans. However, if you wonder how to get rid of private student loans, do not lose your hopes. There are still options that can make the loan repayment process easier. In the following sections, we will discuss your options:
- Debt Refinancing
- Debt Deferment/ Loan Forbearance
- Negotiating with the Lender
- Bankruptcy
But First…
In this guide, we try to explain every tiny detail of your debt relief options. However, the eligibility requirements or pros and cons can still be confusing for the borrowers. The information presented usually involves technical terms that can be unclear. Additionally, rejection due to ineligibility can bring further challenges such as reduced credit score. Therefore, it is essential to choose the right program to solve your debt problems.
Hence, we advise you to get expert help to find the most suitable program. Third-party specialists, like Student Loans Resolved, have experience in this field and helped thousands of debtors. We can analyze your conditions and determine the program with the highest benefit. Contact us now to ask your questions or request expert help.
1. Debt Refinancing
One of the most useful alternatives to Private Student Loan Forgiveness is debt refinancing. Refinancing allows borrowers to get a new debt instrument to cover previous obligations. In other words, the borrower receives a new loan and pays off all the existing loans.
In general, people utilize this solution if the new loan has better conditions. For example, if a financial institute offers loans with an amount that can cover your debt but with a lower interest rate, it is worth considering. Especially, borrowers with high credit scores can access cheaper loans for refinancing. Additionally, this Private Student Loan resolution works well when the Federal Reserve declines the interest rates.
Benefits of Refinancing
As mentioned before, debt refinancing involves getting a new loan to pay off all existing debt. One might wonder why getting a new loan can be a good solution. In general, the borrower will have only one loan to deal with, making debt management easier. Besides, the new loan can have more favorable terms like lower interest payments. The benefits can be summarized as:
- Debt refinancing consolidates the loans and makes them easier to manage
- It is a quick solution if the debtor struggles with the payments
- It can affect credit score positively because borrowers will pay off their current debts
- It can bring better loan terms - lower monthly payments or interest rates
Eligibility Criteria
Leading Debt Refinancing service providers usually require two conditions- high credit score and stable income. A credit score higher than 600 is desirable to get a loan with more favorable terms. The best refinancing companies use this factor as an indicator of risk. The higher the score, the less the nonpayment risk. If a borrower has low credit performance or has bad credit, it will be harder to enjoy the benefits of this Private Student Loan Forgiveness alternative. In some cases, the borrowers can get help from a cosigner to get refinancing loans. The cosigner is also a risk hedging strategy of refinancing companies because if the borrower does not repay, the cosigner will be required to meet the debt obligations.
Best Refinancing Companies
Speaking of eligibility criteria, it varies depending on which refinancing company the debtor selects. Each has its own conditions and benefits. However, some service providers have already occupied the top places in the list of leading companies. Sofi, RISLA, Laurel Road, Commonbond, or College Ave are some of the examples. If you want to get more information about the lenders, their pros and cons, you can check this article on refinancing services.
Should I Refinance?
The decision of refinancing depends on some factors. The general rule is that if borrowers struggle with debt repayment, they should refinance as soon as they become eligible. It means, if the debtor has a good credit score, stable income, and a cosigner, it can be the best time to apply for Debt Refinancing. However, the decision should not only involve borrower-related factors. Even if the debtor qualifies, he/she should wait until finding a beneficial program. There is no meaning in applying this Private Student Loan Forgiveness option if the new loan will have worse terms than the existing ones. In general, refinance the debt if:
- You have private debt- this condition might seem obvious, but it is for federal loan holders. If you have a federal loan, try the federal assistance programs first before refinancing. Government programs usually have better conditions.
- You have a variable interest rate- variable interests can become a huge concern if the interest rates keep increasing. In this case, refinancing the loan can be a better option as it can bring fixed rates.
- Your eligibility conditions improve- borrowers who applied before and got rejected due to ineligibility can apply again if their income or credit score is improved.
Some conditions that make Debt Refinancing undesirable is the increased payback period, bankruptcy, default, or have federal loans. Some borrowers might want to get rid of the debt as soon as possible. Hence, refinancing might not be the best option as it generally prolongs the repayment period. Also, during bankruptcy declaration or default, the credit scores are low, making the debtors ineligible. Lastly, federal borrowers will be better off with federal forgiveness programs instead of refinancing.
Refinancing for Multiple Times
Another advantage of this Private Student Loan Forgiveness substitute is that it can benefit multiple times. If a borrower applied before to this option, he/she could reapply to take advantage. Usually, there are not many cons of multiple applications, as the process generally requires no origination fees. However, one should keep in mind that the second time application can involve a more detailed credit performance check. If the private student loan borrower has a qualifying credit score and income, there is no need to worry about reapplying.
Refinancing Bonuses
Debt Refinancing can become even cheaper with the help of bonuses. Many lenders provide bonuses to attract borrowers. These bonuses have different types, such as sign-up, referral, loyalty rewards, etc. Sure, if a lender does not offer a low-interest rate, the bonuses cannot compensate for this disadvantage. In other words, if you cannot decide between a catchy bonus and a lower interest, you should definitely go with better interest terms. In this way, you will save more in the long run. However, having small benefits from the reward is also desirable with the best lenders.
Private student loan borrowers should be careful before agreeing on bonuses or other offerings. You should always read the terms before accepting them.
If the Credit Score is Low…
As mentioned before, a credit score is one of the most important factors in this Private Student Loan Forgiveness alternative. Usually, qualifying borrowers have more than 600 scores. Also, keep in mind that if the lender requires a cosigner, he/she should also meet the same eligibility criteria. Borrowers with better credit performance will enjoy more favorable loan terms- lower interest rates.
Understandably, you might not have a great credit history if you are struggling with loan repayment. In this case, the chance of getting the best refinancing service is lower. However, you can still refinance the loans. Most lenders will require a cosigner to compensate for your low credit score. This cosigner should have great financial standing and credit performance. If the borrower is not able to make payments, the cosigner must pay the debt. Otherwise, the consigner’s credit rating will be affected negatively, and it can even have legal consequences.
Borrowers should also be informed that some lenders offer “cosigner release” options. In this case, the cosigner is released once the borrower improves credit performance or makes a fixed amount of payments. For instance, INvestED can release the cosigner after making 48 eligible payments.
How to Get Private Student Loan Forgiveness if There’s No Cosigner?
It is not easy to convince people to co-sign the loan. Therefore, for some borrowers, a cosigner is not an option. If the borrower has a good credit history, this Private Student Loan Forgiveness substitute will still be available. You can find lenders that do not require a cosigner. However, if your financial standing is not great and credit performance is low, it is almost impossible to find a bad-credit refinancing loan without a cosigner. All you can do is improve financial conditions and credit score or find another option for your debt concerns.
Income Level Condition
Another significant eligibility criterion is income level. Borrowers with stable and adequate income for debt payments will qualify for this Private Student Loan Forgiveness alternative. Some borrowers with lower income levels can also refinance their debts with low-income offerings by certain lenders.
However, before application, it is necessary to check the income requirements of several lenders. Several lenders disclose this information on their websites. The income condition can change depending on the debt amount needed and the lenders’ policies. Usually, lenders use a debt-to-income ratio to check eligibility. This ratio shows the difference between the revenue and liabilities of individuals. To improve this ratio, one can lower the liabilities such as car or rent payments. Increasing revenue is also an option, but it is hard to achieve. Besides, the income condition might change based on the borrowers’ credit scores. The higher the score, the more chance for a lower-income benchmark.
Application to Refinancing
If borrowers want to benefit from Debt Refinancing, they need to take several steps. The first step is choosing a suitable program. One should review potential lenders’ eligibility conditions, including credit score, income level, and consigner. Next, the borrower should compare his/her financial conditions with the requirements.
Sometimes it is possible to request an initial interest rate estimation. Best refinancing companies provide pre-qualification services on their websites. By submitting the required information, the borrowers can determine the approximate interest rate they will qualify for. In this case, the debtors’ credit scores do not get affected negatively, and one can prequalify for multiple times. However, debtors should be careful. Some lenders do not provide a pre-qualification. To get the offer and interest rate, one should submit all documents which complete the application process. As a result, the application to this Private Student Loan Forgiveness option can negatively affect credit performance if the borrower applies multiple times.
After deciding on a lender, borrowers need to think carefully about the loan terms. For instance, some lenders offer both fixed and variable interest rates. They both have advantages and disadvantages. If interest rates are declining, fixed interest can lead to still higher payments. However, when interest rates increase, fixed terms will hedge the risk of a higher repayment amount. There always exists a trade-off between these two options, and borrowers should choose the one that suits them the best.
Approval/Rejection Cases
Once the borrowers submit the documents for this Private Student Loan Forgiveness alternative, the refinancing companies will check the credit score and income level to decide. If the decision is approved, the borrower will be notified, and he/she will be required to sign some documents. Even in the case of approval, the debtors will have a three day period to change their minds. If they do not communicate any cancellation decision, the refinancing company will continue the process and payout the existing student debt.
Please, keep in mind that private borrowers are required to meet their loan requirements until they are informed about the refinancing process’s completion. Before these notifications, it is not advisable to stop making payments. There is no need to worry that you will pay more than required because the lenders will return the overpayments. Once you know that refinancing is done, you can completely forget about the existing loans and focus on your new loan.
Unfortunately, some borrowers will still receive a rejection from the lenders if their credit score or income levels do not qualify. If you face the same situation, you can read the above sections to determine what to do in case of rejection due to bad credit or low income. Alternatively, you can consider other Private Student Loan Forgiveness options.
Final Words on Refinancing
Though we will present several alternatives to the Private Student Loan Forgiveness program in this guide, you need to keep in mind that Debt Refinancing is the top solution you can achieve. It offers various benefits and helps borrowers to pay out their debt. Other solutions presented in this guide might not be an as accessible or sustainable solution as Debt Refinancing. If you qualify for this program, we advise you to apply fast and start enjoying the advantages of refinancing.
2. Debt Deferment/ Forbearance
Generally, deferment or forbearance helps borrowers to stop debt collection for some period. Though the borrowers are not required to make payments during this period, the interest will continue accumulating. Hence, loan deferment and forbearance can be a solution only temporarily, not permanently.
This Private Student Loan Forgiveness alternative can be granted for different reasons. For example, deferment is available when the borrower still studies, works as an intern, clerk, fellow, or serves in the military. In this case, the debtors can stop collection for up to 36-48 months, depending on the lender. The EDvestinU or College Ave allows deferment till the borrowers graduate. Meanwhile, Sallie Mae or Ascent provides more cases for deferment, like an internship or fellowship.
Different from deferment, forbearance assists private borrowers when they face financial difficulties. Instead of causes like studying or serving in the military, forbearance depends on economic hardships. Sometimes, natural disasters or declared emergencies can also be a reason for forbearance, which the Ascent or MEFA supports. Unlike debt deferment, forbearance has a shorter period. For example, Citizens Banks allow seized collections due to economic challenges for up to a year. In the case of natural disasters, Ascent allows a maximum of 3 months of nonpayment. Again, do not forget that even in the nonpayment period, the interests will accrue. When the payments are resumed, the borrowers will be obliged to cover unpaid interests, too.
Which Private Student Loan Forgiveness Option is better: Refinancing or Deferment/Forbearance?
The suitable Private Student Loan Forgiveness alternative depends on the conditions that borrowers face. As mentioned before, refinancing is a long-term solution. By refinancing, it is possible to get a lower interest and manage debt payments easily. At the end of the payback period, the borrower will get rid of the debt. However, debt deferment/ forbearance is only a short term solution. Once you lose deferment or forbearance status on a loan, you will be obliged to make loan payments. Even worse, you should cover all accumulated interests. Yet, borrowers who are still studying or lost their jobs unexpectedly can enjoy deferment/forbearance to have some time for thinking and planning future debt payments.
3. Negotiating with the Lender
Another alternative to Private Student Loan Forgiveness is getting better terms from the lender. Sometimes, it is recommended to contact the lender and discuss what options are available to you if you are going through financial hardships. If no option is useful, you can then try to convince the lender to do some favors, such as decreasing interest rate, monthly payment, or stopping collection for a temporary period. For example, during the Covid pandemic, many people lost their jobs, or their income level was decreased. Private borrowers facing the same issue can contact their lenders and ask how they can help the debtor during these challenging times.
Sure, the lender has no obligation to ease the repayment process if such benefits are not stated in the original agreement. However, some lenders would not wish their debtors to default. Loan default will bring bigger inconveniences, such as a lawsuit claim, fees to attorneys, collection fees, etc. Hence, it can be desirable for the lender to assist the borrowers in hard times.
How to Negotiate with the Lender?
Before utilizing this Private Student Loan Forgiveness alternative technique, one should prepare thoroughly. The main rule is that the borrowers should accept that the lender has the right to the final decision. The lender has no obligation to help the borrower. Hence, there is no use in talking angrily to a lender or starting a conflict. During the whole negotiation process, debtors should approach lenders with the utmost respect. They should try to explain the reasons why they cannot meet debt obligations. Besides, the borrowers should indicate that they already used all possible options to keep up with the payments- such as getting a new part-time job or asking for a friend. The lender should be convinced that if he/she does not help with favorable terms, the borrower will default. Yet, there is no guarantee that the lender will agree to change terms at all.
Some third-party experts can help with debt negotiation and settlement as a substitute for Private Student Loan Forgiveness. Such experts are usually more successful in negotiations for several reasons:
- The experts have the necessary communication skills to convince the lenders with facts
- The experts own emotional power, and they negotiate with patience and determination
- Usually, organizational lenders are in the same network as such experts.
To sum up, borrowers can utilize this private debt resolution strategy by themselves or get help from a third-party institution. Sure, the experts are more skillful, and they might have a professional relationship with the lenders. However, keep in mind that this strategy is uncertain, and lenders have no obligation to accept better terms.
4. Bankruptcy
Bankruptcy is also an option for Private Student Loan Forgiveness. It is possible to get rid of the debt or restructure it through bankruptcy. However, we do not recommend declaring bankruptcy unless the borrower exploited all other alternatives. While loan bankruptcy might help with the debt challenges, it will bring even bigger negative consequences.
Advantages of Bankruptcy
Once the borrower files, the court will start a ‘stay against’ period. During this period, the lenders will not collect any payments. However, it does not mean that the debt is eliminated. Rather, it is a temporary period of suspended collection. As a result, the borrower will not be pressured by the lenders, receive any calls or letters, or lose his/her wage for debt garnishment. If the lender does not obey these rules and tries to get the payment, the borrower’s attorney can take legal action. It means the creditor can be required to pay penalties.
Another advantage of bankruptcy is that it can help debtors to get rid of some debt types. Dischargeable debts include credit card debt or utility bills. Personal loans also belong to this category, but there is no guarantee that the debt will be forgiven. Additionally, some exemptions can be achieved with bankruptcy. Though the assets might be lost, you can still keep some valuable assets like a wedding ring.
Disadvantages of Bankruptcy
The greatest con of this Private Student Loan Forgiveness option is that it damages credit performance significantly. The credit score gets low, and the bankruptcy’s negative consequences stay in credit history as long as ten years. During this period, even common financial activities such as renting an apartment or getting insurance can be challenging. If the borrower wants to get a new mortgage or other loans, he/she will mostly be unable or get debt with extremely high-interest rates. Plus, when applying for a job, the employer can do a credit check, and bankruptcy filing can be a barrier to employment.
Besides, bankruptcy can involve liquidation, which means the debtors will lose some assets, such as real estate. Lastly, certain debts will not even qualify for bankruptcy. Such non-dischargeable debts might include child support, alimony, criminal fines, or fraudulent debts.
Timing for Bankruptcy
Bankruptcy will bring advantages if the borrower applies at the right time. Sometimes, wrong timing is the main reason for failure. If a borrower applies too early, he/she might not be able to get rid of the debt. In court, it is tough to prove a bankruptcy case. The main condition is proving ‘undue hardship,’ which means repaying the debt will not allow the debtor to survive. Besides, the debtor should use all other options before applying for bankruptcy. Hence, early filing for bankruptcy can be unsuccessful. Additionally, even if you still manage to get rid of the debt through this Private Student Loan Forgiveness alternative, you will lose some assets. It can be possible that because of filing early, you missed better options for forgiveness, which might have saved your assets.
Chapter 7 vs. Chapter 13 in Bankruptcy
The consequences of bankruptcy depend on two chapters, chapter 7 and chapter 13. Keep in mind that chapter 11 and 12 also exists for special borrowers. For example, chapter 11 is for large businesses, and chapter 12 is for fishers and farmers.
Chapter 7 is exactly what comes to your mind when talking about bankruptcy. If you wonder how to get rid of private loans with bankruptcy, chapter 7 will help you. This bankruptcy type involves the liquidation of assets. As a result, many unsecured debts will be forgiven or eliminated. It usually takes between three to five months to complete the process. Besides, this bankruptcy filing requires immense effort- borrowers need to submit all necessary documents, overcome challenging legal issues, and prepare many forms.
Chapter 13 is different from chapter 7. It does not liquidate assets or eliminate loans. This type only restructures the repayment process. As a result, new repayment will be suitable for the borrowers’ income levels, and they will be required to continue making payments. This bankruptcy process usually takes up to five years to complete. At the end of this period, the major debts will be repaid. Lastly, when filing for Chapter 13 bankruptcy, borrowers will mostly need to hire an attorney.
Bonus Option
It is not common, but sometimes private borrowers can also access death or disability discharge. If a borrower becomes permanently discharged or dies, the debt can be forgiven. However, only some lenders provide these benefits. Sallie Mae and College Ave are some of the service providers with these Private Student Loan Forgiveness options. You can contact your creditor to learn about these options or consider them while getting a new loan for refinancing.
Which Option to Choose?
Private debt, with its $135 billion volume, is a national problem. While the government provides financial assistance options to federal loan borrowers, there are not many alternatives for private debtors. Hence, such borrowers can wonder how to get rid of private student loans. Although Private Student Loan Forgiveness can be impossible to get, luckily, there are some beneficial alternatives. This guide presented refinancing, forbearance/deferment, negotiation with the lenders, bankruptcy, and disability/death discharge as accessible options to private borrowers.
We tried to cover all details of Private Student Loan Forgiveness substitutes. However, due to student loan assistance programs’ nature, the details involve many technical terms and can be confusing. If you cannot decide which alternative you should opt for, we can help you. Student Loans Resolved has years of experience in the student debt management field. Our experts have helped thousands of students to eliminate or reduce their debt obligations. We can help private borrowers by considering their financial conditions and finding the most suitable program. All you need to do is contact us asap to start ‘the beginning of the end’ for your debt burden.
