Not everyone is lucky enough to qualify for federal student aid or even a federal student loan. Many Americans turn to the private student loan market to find the financial means to further their education.
Private student loans often come with higher interest rates and less flexibility than federal student loans, but that doesn’t mean you are left stranded. There are many private student loan repayment options if you know what to look for.
Private Student Loan Refinancing
One of the best student loan repayment options for students struggling with their current debt is to seek out refinancing options. There are many, many lenders willing to refinance your student loans – including brick-and-mortar financial institutions, online lenders, and credit unions.
Refinancing works by securing a new loan to pay off all your current student loans immediately. It doesn’t matter whether they’re federal or private loans, they can all be rolled into one private loan. After paying off all the individual loans, which likely had variable rates, you now can focus on one monthly payment. The refinanced loan typically comes with a better interest rate and can save the borrower thousands over the course of the loan.
Shop around and listen to what each possible lender offers. Use an online student loan refinancing calculator and explore what it might mean for your particular financial situation.
Private Student Loan Forbearance
Although typically more restrictive than federal student loan forbearance programs, they do still exist. The specific terms vary widely, and some lenders use the term deferment, but the most commonly accepted reasons for forbearance are:
Many private student loans come with a forbearance period while in school. They may offer it only for a four-year term, or for longer. Lenders may also waive all repayments or require a minimum interest payment during post-secondary education. Speak with your financial institution to clarify their rules on in-school deferment.
During Military Service
During military deployment, some student loans have a deferment period of up to three years.
During a Financial Crisis
Some lenders may also have short-term forbearance options open to those going through financial hardship. Typically, lenders only approve two months of deferred payments at a time, and only up to 12 months total during the life of the loan. There may also be additional fees associated with this program.
Forgiveness for Private Student Loans
At the moment, and particularly under the new federal administration, there are no moves to provide for private student loan forgiveness. Part of the risk associated with private student loans is that they do not come with the same protections offered through the federal student loan program.
However, that isn’t to say you are without options. First, speak with your lender about your concerns. It’s highly unlikely they will forgive your debt completely, but they may be willing to work out better student loan repayment options, like lower monthly payments and longer terms.
Bankruptcy for Private Student Loans
Although the stereotypes will lead you to believe otherwise, it is possible, in some circumstances, to include a private loan in bankruptcy proceedings. Part of the reason why there are not more student loans wiped clean is that most simply don’t decide to include it. This may be because people just don't know their options.
However, according to a recent publication in the American Bankruptcy Law Journal, nearly 40 percent of bankruptcy cases who requested it was granted a hardship discharge. This classification would qualify the claimant to have the student loan dismissed as well. They also determined that the success rate did not depend on having an attorney.
To have your private student loan included in the bankruptcy decision, you must claim (and prove) extreme financial hardship. If the bankruptcy court agrees, then all debts, including the private student loan, will be accepted.
Even if you hold more than one private student loan, there is more than one option out there for you if you feel particularly stuck in your financial situation. The best bet is to schedule an appointment with your lenders and speak with them about your options. Often lenders also have refinancing options or will help you negotiate the original terms to something that works better.