Let’s be honest. We’ve all encountered a feeling of being overwhelmed with our finances and may have considered every possible remedy that exists to get out of our rut. But in our haze we must be careful to not fall for “fake news” or urban legends. Private student loan forgiveness does not exist; at least not in the traditional sense.
If you’re serious about getting free from the weight of crushing private student loan debt, we can help. Here are some options.
Evaluate Your Personal Financial Health
You financial health is made up of a lot of different components. It may be your student loan payments that are keeping you up at night, but it’s worth it to examine all your finances. How much you are earning, what you have in savings, as well as where are you spending your money.
Do you have private student loans and federal student loans? Do you have subscription services you can live without? Or is it finally time to downgrade that cable package? Create a budget and clearly identify where your money is going.
Once you go through it all, see where you can make changes. No change is too small, lots of small changes may make a large impact.
Do You Have Federal Student Loans? Seek Federal Student Loan Forgiveness First
While private student loan forgiveness does not technically exist, federal student loan forgiveness does. If you’ve borrowed federal loans, you may remember your entrance or exit loan counseling sessions (extra points if you read through your promissory note). You may recall that it is possible to discharge your federal student loans through programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. These are options that exist in the Direct Loan Program. Additionally, there are loan forgiveness programs for certain government jobs and agencies. Plus, there are additional options for military personnel, AmeriCorps and Peace Corps volunteers, individuals participating in Income-Driven Repayment Plans, and more.
Pursuing forgiveness options that exist within the federal student loan program is a great way to help alleviate debt stress, because you’ll free up at least one source of financial burden.
Ask About Employer-Sponsored Student Loan Repayment
According to New York Fed’s Quarterly Report on Household Debt and Credit (dated May 2019), Americans owe $1.5 trillion in student loan debt, with 11% of that debt being 90+ days delinquent. And not all of this debt is held by Millennials. There are also plenty of parents who borrowed PLUS loans to help pay for college. What this means is the workforce has been crying out for help in the form of additional employer benefits. And a number of big firms—including Aetna, Fidelity, and PwC—have answered the call. States like Tennessee are even jumping on the bandwagon by offering a $50 per month contribution to assist employees with their student loan repayment. As more companies evaluate employee benefits, it is likely we will see an increase in the number of employers who offer this perk.
Your immediate action item is to ask your employer if this is something they currently offer. Many employers may offer a tuition reimbursement program, but it never hurts to ask if considerations may be made to extend this benefit to student loan repayment.
Student Loan Refinance
Student loan refinance (a.k.a. private student loan consolidation) is a great way to restructure private loan debt. In addition to combining multiple loans together—including federal loans, should you choose to include them—a refinance allows you to shop around for a lower interest rate. And, depending on your loan balance, it is quite likely that you can extend your repayment term, thereby lowering your monthly payment. If you’re overwhelmed and looking for breathing room in your budget, this could be a viable solution.
If this is an option you would like to pursue, you will need to qualify. A private student loan refinance will require you to have strong credit, proof of employment, and a good debt-to-income ratio. If you need to, you do have the option to apply with a cosigner.
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Call Your Private Student Loan Lender
If you are experiencing difficulty repaying your private student loans, we highly encourage you to contact your lender. Many lenders offer some type of temporary hardship relief. You may be eligible for a deferment or forbearance, for example. It’s true that the time limit is not as generous as the federal program, but a limited deferment or forbearance term may be an option. Plus, it’s always best to communicate proactively and explain your current situation to your lender(s) so they can help you find a solution, even if it’s temporary. There’s a lot at stake if you miss payments, including taking a hit to your credit score. Getting ahead of any issues you’re facing is critical to avoiding larger issues.
Private Student Loan Discharge
Now, when it comes to student loan discharge (a term used when something bad has happened), there may be some options. Private student loan lenders may offer a loan discharge (aka cancellation) in cases of the borrower’s death or disability. The best thing to do, contact the loan servicer to discuss the borrower's situation. Even if this benefit was not included in the loan’s terms and conditions, most lenders have a compassionate review process, where they review requests for financial relief on a case-by-case basis.
Can Student Loans Be Included in Bankruptcy?
Since this article attempts to debunk urban legends around private student loan forgiveness, we need to address another popular myth…bankruptcy. You may be under the impression—or heard rumors—that it is possible to discharge student loans in a bankruptcy proceeding. The reality is it’s not likely. For most bankruptcy proceedings, you typically cannot include any student loans. In fact, it’s nearly impossible.
Simply filing a Chapter 7 or Chapter 13 bankruptcy and including student loans as part of your overall indebtedness is not sufficient. Obviously, if you may be entertaining or pursuing a bankruptcy, we encourage you to consult an attorney. But note the standards imposed by the U.S. Bankruptcy Code require you to demonstrate that the repayment of a “qualified education loan” would impose an undue hardship to you and your dependents. And this would also be subject to an adversarial proceeding, which means the lender(s) may challenge it. Historically, borrowers seldom win the fight to include student loans in a bankruptcy filing. So, does this ultimately mean student loans can be included in bankruptcy? Legal counsel can answer that far better than we can.
Ask Your Family to Help
Okay, this one is a bit touchy. Asking family (or friends) to help doesn’t necessarily mean that you invite them to write a check each month. You can start with the simple things that allow you to maximize your budget while seeking their support in the process. For example, instead of doing gift exchanges during the holidays, implement alternative gifting options or expressions that don’t require spending money. Or if someone is inclined to splurge on you for your birthday, respectfully ask that they give you an option to trade the value for payment towards your loan debt instead. When loved ones understand that you’re trying to get ahead and fulfill your student loan obligations, they may be more than happy to help you out in some small way.