Left out of student loan forgiveness? What to do about private student loans

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Private student loans make up just about 7.6% of the trillion-dollar student loan market, according to data exchange platform MeasureOne. But private student loan borrowers carry a total $123 billion-plus share of Americans’ total student loan debt.

The broad student loan forgiveness which President Joe Biden announced on Aug. 24 doesn’t apply to private student loans. Private lenders fund them, not the federal government.

If you have private student loans, you can take steps that could help you manage your payments, lower their cost and pay them off faster — including refinancing. 

With Credible, you can easily compare student loan refinancing rates from multiple lenders in minutes.

Can you get private student loan forgiveness?

Government and independent student loan forgiveness programs don’t apply to private student loans. Only federal student loans can be forgiven.

However, your private student loan lender may offer some kind of relief for borrowers in financial distress. You may be able to contact your lender and request a payment pause, or a lower interest rate or payment amount. But these measures will be temporary, and interest will continue to accrue during the relief period.


Can bankruptcy cancel private student loan debt?

Federal student loans can’t be discharged through bankruptcy. Private student loan debt can, although the process can be more difficult than discharging other types of debt, like credit card debt.

Some types of private student loans may require borrowers who file for bankruptcy to demonstrate extreme financial hardship and go through an extra step known as an adversary proceeding, according to the Consumer Financial Protection Bureau. Certain education loans are treated like other types of unsecured loans. The CFPB says these include:

  • Loans paid directly to the borrower for an amount higher than the total cost of tuition, books, and room and board
  • Loans to attend unaccredited colleges, schools outside the U.S., unaccredited training and trade certificate programs, and other educational institutions that aren’t eligible for Title IV funding
  • Loans taken to cover fees and living expenses while the borrower studies for the bar or other professional exam
  • Loans taken by borrowers who attended school less than half-time

Bankruptcy should be a last resort

If you’re struggling financially, bankruptcy can look like an appealing solution. But it’s important to remember that bankruptcy is a legal process with far-reaching and lasting negative consequences. 

Bankruptcy can appear on your credit report for seven to 10 years after it’s settled in the courts, depending on the type of bankruptcy. In addition to its immediate negative effect on your credit score, bankruptcy can make it difficult to secure new credit, or secure credit at favorable rates and terms, while it’s still present on your credit report.


Could President Biden forgive private student loans?

It’s highly unlikely, and perhaps even impossible, for the federal government to broadly forgive private student loan debt. Banks, credit unions, online lenders and other private financial institutions issue private student loans — not the Department of Education.

The Department of Education was set to extend $10,000 in student loan forgiveness to individual federal student loan borrowers making $125,000 or less ($250,000 or less for households). Qualifying borrowers who also received federal Pell Grants were to get up to $10,000 more, for a total of $20,000 in forgiveness. However, several lawsuits arose, with two of them blocking the program from being enacted. About 16 million borrowers had already applied and been approved for forgiveness.

Oral arguments were made before the Supreme Court on Feb. 28, but a final decision won’t be made until June.


Alternative to private student loan forgiveness

Defaulting on student loans can have serious consequences for your credit and finances. If you’re struggling to repay your private student loans, the only way to permanently change your rate and terms to something more manageable is through student loan refinancing.

Refinancing your student loans may be an option for you

There are multiple benefits to refinance, including:

  • The ability to streamline your payments by consolidating multiple student loans into one.
  • The opportunity to get a lower interest rate that will save you money over the life of the new loan, especially if your credit has improved since you first took out the loan.
  • The ability to lower your monthly payment by extending your repayment period (although this will likely mean a higher total interest cost).
  • The chance to pay off your loan sooner by refinancing into a shorter repayment term. You’ll save on interest in the long run, although your monthly payments will likely be higher.

If you’re planning on refinancing your student loans, it’s important to consider options from more than one lender. Credible makes it easy to compare student loan refinance rates from multiple lenders in minutes, and it won’t affect your credit score.

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