Forgiveness and Discharge for Private Student Loans

Options for the forgiveness and discharge of private student loans are limited.

Most loan forgiveness programs, such as public service loan forgiveness, are restricted to federal student loans. Loan repayment programs offered by the U.S. military and federal agencies, are generally restricted to only federal student loans. Some loan repayment assistance programs offered by individual employers, however, may include repayment of both federal and private student loans.

A handful of lenders offer death and disability discharges on private student loans that are modeled after the similar discharge provisions available on federal education loans. These lenders include Sallie Mae, the New York Higher Education Services Corporation, Wells Fargo and Discover. Most lenders also have a compassionate review process, where they review requests for financial relief on a case-by-case basis.

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In order to qualify for private student loan refinancing, lenders require a strong credit score with proof of income and employment history. In some cases a cosigner may be required. Also, if you have adverse credit history, including a prior student loan default*, you may not be eligible. * Default = 270 days late/missed payment on a federal loan and typically 90 days late/missed payment on a private loan(contact your lender for exact definition of default).

To be considered for the forgiveness and discharge of private student loans, it is best if the borrower contacts the lender directly. Ask for the lender’s compassionate review process. Lenders tend to be more accommodating when the borrower’s financial difficulties are due to circumstances beyond the borrower’s control and when it is clear that the borrower will never be capable of repaying the debt (e.g., the borrower is a paraplegic after being hit by a drunk driver). Some lenders will react more favorably to a request from the borrower as opposed to a request from a lawyer representing the borrower.

Bankruptcy discharge is not an effective solution for most borrowers. Both federal and private student loans are exempt from discharge unless repaying the student loans represents an undue hardship for the borrower and the borrower’s dependents. Most borrowers who file for bankruptcy do not receive a full or partial discharge of their student loans. However, of the borrowers who are successful in getting their private student loans discharged, most involve severe disability, illness and injury that preclude the borrower from earning enough money to repay the debt.

Lenders may require independent, third party documentation of the borrower’s circumstances, such as letters from the borrower’s doctor, a certified copy of the death certificate and proof of the recent receipt of unemployment or disability benefits.

Borrowers should keep a copy of every letter they receive from the lender. It is important for the borrower to keep notes about every conversation with the lender, including the name of the lender’s representative, the telephone number calls and the date of the call. Print a copy of every email message sent to or received from the lender. Keep a copy of this documentation in a file folder. Borrowers should continue making payments on the loans until the lender informs them, in writing, that the debt has been cancelled.