Is Private Student Loan Forgiveness Real?

By Elaine Rubin November 8, 2019

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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.

Compare Top Refinance Lenders

Lender

Recommendation

Best for Student Loan Refinancing

Interest Rates

Variable as low as: 1.74% APR¹

Fixed as low as: 2.49% APR¹

Repayment Terms

5, 7, 10, 15, 20 years

Apply Now More Info

×

SoFi Student Loans

• Rates as low as 1.74% variable and 2.49% fixed¹
• No fees or prepayment penalties
• Unemployment protection
• Show more info »

¹Fixed rates range from 2.49% APR to 6.94% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 6.59% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Lender

Recommendation

Best for Student Loan Refinancing

Interest Rates

Variable as low as: 2.94% APR¹

Fixed as low as: 2.99% APR¹

Repayment Terms

5, 10, or 15 years²

Apply Now More Info

×

College Ave Student Loans

• Variable rate range: 2.94% – 4.79% APR¹
• Fixed rate range: 2.99% – 4.89% APR¹
• No application or prepayment fees
• Apply in 3 minutes or less for instant credit decision
• Show more info »

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

¹The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.

²This informational repayment example uses typical loan terms for a refi borrower who selects the Full Principal & Interest Repayment Option with a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

³$5,000 is the minimum requirement to refinance. The maximum loan amount is $250,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

Information advertised valid as of 12/21/2021. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

Lender

Recommendation

Best for Student Loan Consolidation

Interest Rates

Variable: 1.99% APR - 5.74% APR²

Fixed: 2.99% APR - 6.74% APR²

Repayment Terms

10 or 20 Year repayment term based on creditworthiness

Apply Now More Info

×

Discover Private Consolidation Loan

• Consolidate federal and private student loans.
• No fees. No application, origination or late fees.
• Choice of fixed or variable interest rate.
• 0.25% interest rate reduction while enrolled in automatic payments1
• Show more info »

¹Visit DiscoverStudentLoans.com/AutoDebitReward for terms and conditions.

²Lowest APRs are available for the most creditworthy applicants who are approved and choose a shorter repayment term, and include an Auto Debit Reward.

³The fixed interest rate is set at the time of application and does not change during the life of the loan unless you are no longer eligible for one or more discounts. The variable interest rate is calculated based on the 3-Month CME Term SOFR index plus the applicable margin percentage less any applicable discounts. The 3- Month CME Term SOFR index value for variable interest rate loans is 0.125% as of November 14, 2021. 3-Month CME Term SOFR is administered by CME Group and is published by CME Group on its website (cmegroup.com/termsofr). Discover Student Loans may adjust the variable interest rate quarterly on each January 1, April 1, July 1 and October 1 (each an “interest rate change date”), based on the 3-Month CME Term SOFR rate available for the day that is 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125), or 0%, whichever is greater. This may cause the monthly payments to increase, the number of payments to increase or both. If the 3-Month CME Term SOFR rate is less than zero percent, then the index will be deemed to be zero percent (as stated in the promissory note) for purposes of calculating your interest rate. Your variable interest rate (index + margin – applicable discounts) will not exceed 18%. Our lowest APRs are only available to applicants with the best credit. The APR will be determined after an application is submitted. It will be based on credit history, the selected repayment option and other factors, including a cosigner’s credit history (if applicable). If a student does not have an established credit history, the student may find it difficult to qualify for a private student loan on their own or receive the lowest advertised rate. Learn more about Discover Student Loans interest rates.

Lender

Recommendation

Best for Student Loan Refinancing

Interest Rates

Variable as low as: 2.15% APR¹

Fixed as low as: 2.99% APR¹

Repayment Terms

5, 8, 12, or 15 years

Apply Now More Info

×

PenFed Student Loans Powered by Purefy

• Refinance federal and/or private student loans at lower rates with no fees.
• Choose a 5, 8, 12, or 15 year term to best fit your needs.
• Each applicant receives a personal loan advisor to help them through every step in the process.
• Spouses can refinance their loans together. Parents can refinance their loans too.
• Show more info »

¹Rates and offers current as of April 1, 2021. Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99% APR to 5.15% APR and Variable Rates range from 2.15% APR to 4.45% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%.

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.