How to get out of private student loan debt? How to get help with private student loans? Dealing with significant debt can be overwhelming. As you pay off your debt, it’s natural to wonder about the best way to get out of student loan debt. You wouldn’t be the first to wonder if there is a way to legally avoid paying off your student loans, such as filing for bankruptcy.
The honest answer is that it is quite difficult to get rid of your student loans by filing for bankruptcy. Some other options can help minimize the amount you pay back, such as federal forgiveness programs or even options that can make monthly payments more affordable, such as income-based repayment plans.
How To Get Out Of Private Student Loan Debt
1. Loan Forgiveness Programs
Depending on your eligibility, there are a few different loan forgiveness programs available to borrowers with federal student loans. These programs can help you avoid paying off some of your student debt by forgiving your loan balance after a certain number of years.
Each forgiveness program has different eligibility criteria.
Teacher Loan Forgiveness
This federal student loan forgiveness program forgives highly qualified teacher loans. Depending on the subject they teach, teachers who meet the entry requirements can have up to $17,500 or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after completing five years of service.
Forgiveness of Public Service Loans
This program is for people who work in the public service. To be eligible for Public Service Loan Forgiveness (PSLF), applicants must meet the program’s eligibility requirements, which include:
- Working for a qualifying organization; including the U.S. federal, state, local, or tribal government, or a qualified non-profit organization
- Full-time work
- Have direct loans or have a direct consolidation loan
- Make 120 qualifying payments on an income-driven installment plan
Borrowers interested in obtaining PSLF must follow strict eligibility requirements and get their loan balance waived. The Federal Student Aid website, operated by the United States Department of Education, recommends that participants certify their jobs at least once a year or whenever they change jobs. This is to ensure that the borrower is still current and making qualified payments.
2. Income-Based Payment Plans
Income-driven federal student loan repayment plans link borrowers’ monthly payments to their income. Depending on the specific income-based payment plan you select, they can limit your monthly payments to between 10% and 20% of your income, depending on your eligibility.
The repayment period for means-tested repayment plans ranges from 20 to 25 years, depending on the specific plan the borrower is enrolled in. Income-driven repayment plans help make loan payments affordable for borrowers. However, extending the term of the loan may result in more interest accruing over the term of the loan than with any other payment plan.
At the end of the loan term, the remaining loan balance can be waived. Keep in mind that the IRS may consider the amount waived as taxable income. If you’re looking for how to get out of private student loan debt, this is worth considering.
3. Dismissal due to incapacity for work
Federal student loans can be waived if you have a permanent disability. But it is still very difficult to apply for full and permanent disability leave. You must complete forms and prove to the Department of Education that you cannot earn an income now or in the future because of your disability.
To do this, you will need to get a doctor’s evaluation, provide evidence from Veterans Affairs, or demonstrate that you receive Social Security insurance. But you can’t apply for disability leave until you’ve been disabled for 60 months unless a doctor writes a letter stating that your disability and disability will last at least 60 months.
Unfortunately, not all private student loans give you the option to pay off your loans if you become permanently disabled. If you are permanently disabled and want to take out private loans, you may have to take your lender to court.
4. Temporary relief: delay or tolerance
Another option for people looking for how to get out of private student loan debt. This option will not eliminate student loan debt, but it may be an option to consider for borrowers who are struggling to make monthly payments on their federal student loans. Forbearance and deferral allow borrowers to pause their payments if they qualify.
Depending on the type of loan you have, the interest may continue to rise even if the loan is deferred or deferred. However, applying for one of these options can help borrowers avoid late payments and possible default on their student loans.
Keep in mind that private student loans do not offer the same benefits as federal student loans. However, some can offer their benefits. For example, SoFi offers unemployment protection, which allows qualified borrowers to interrupt the payment of loans if they lose their job through no fault of their own.
5. Student Loan Refinancing
Again, this option won’t eliminate your student loans, but it can help make student loans more affordable. By refinancing your student loans, you may qualify for a lower interest rate, which can lower your monthly payments or save you money on interest over the life of your loan.
If you refinance with a private lender, you can also change the term of your student loan. While private lenders like SoFi can refinance your federal and private student loans, you should know that doing so will lose you some of the protections that federal student loans offer, such as income-based repayment programs.
6. Filing Bankruptcy: The Last Resort
Bankruptcy is a legal option for paying off debt, but student loans are rarely eligible for discharge in bankruptcy. In some cases, if a borrower can demonstrate “unnecessary hardship,” they may be able to pay off their student loans in bankruptcy.
Filing bankruptcy can affect a person’s credit score in the long run and is generally a last resort. Before considering bankruptcy, consider other options, such as talking to a credit advisor or consulting with a qualified attorney who can provide advice specific to the individual’s situation.
Can Private Student Loans Be Forgiven?
Private student loans work differently from federal student loans: Private loans are not forgivable and have less protection than federal loans.
Financial institutions such as banks, credit unions, and online lenders provide private student loans, which often have higher interest rates than federal loans and fewer repayment options. Loan decisions are often based on creditworthiness and you may need a co-signer.
If you have federal student loans, you have options for getting your loans forgiven, including public service forgiveness and income-based repayment plans. However, these are not available for private loans. In addition, if the Biden administration were to waive student loans on a national scale, private student loans would not qualify.
While your options with private loans are more limited, there are ways to get a lower rate or a lower monthly payment. These three strategies can save you money immediately and/or in the long run.
1. Refinance your loans for a lower or one-time monthly payment
The rate you were initially eligible for when you took out your private student loan may be higher than the rate you are now eligible for, especially if your financial situation and creditworthiness have improved. You can refinance with the same lender or shop around to see if you can find a better rate elsewhere.
You can also refinance to extend the life of your loan, which would lower your monthly payments, but if you keep the same interest rate, you’ll end up paying more in total interest over the life of your loan.
It can also be difficult to keep track of different monthly payments, especially if you have loans from multiple lenders with different interest rates. You can combine federal and private student loans into one loan when you refinance your loans, making it easy to keep track of your responsibilities. However, be careful before refinancing your federal loans as you will lose important protections such as public loan waivers and credit-based repayment plans.
2. View Loan Payment Programs
Some states have programs that help you pay off loans if you work in certain professions. You will need to contact your state to find out the availability of these programs, but here are examples of states that currently have these options:
- California: Certain healthcare providers, including physicians, dentists, and nurses, may be eligible for assistance if they work in a federally-designated area with a shortage of healthcare professionals. Many loans from commercial lenders are eligible for assistance.
- Florida: As in California, assistance is available to eligible healthcare professionals working in a federally designated area with a shortage of healthcare professionals. If you qualify, you can get help paying off private student loans.
- Texas: In Texas, this assistance program is for legal professionals who work for a civil legal aid organization. The aid comes in the form of a $5,000 loan that is forgiven after one year, as long as you continue to meet the conditions.
3. Contact your lender to request an extension
A forbearance is an option that allows you to temporarily pause your student loan payments. You should check with your lender to see if they offer forbearance. While interest may still accrue during a period of non-payment, you may get some much-needed financial assistance because you don’t have to pay the full amount each month.
However, leniency is not a long-term solution. The interest that accrues at the end of the non-payment period can add hundreds or thousands of dollars to the total cost of your loan.
Some lenders have specific programs to help you if the COVID-19 pandemic has affected you financially. This includes some emergency forbearance options that may be different or more lenient than the lender’s standard forbearance options.
While private student loans don’t qualify for forbearance in the same way that federal student loans do, you still have options if you’re having trouble keeping up with your payments.
Can Private Student Loans Be Converted To Federal Loans?
Federal student loans can be converted into private loans through refinancing. But there is no way to transfer private loans to federal student loans. Borrowers who refinance federal student loans into private loans cannot undo this step and must understand their risks.
Can Federal and Private Student Loans Be Combined?
You can combine federal and private student loans, but only as a new private loan. This is done through a process known as student loan refinancing. Refinance lenders pay off your original loans, federal or private, and replace them with a new private loan with new terms.
Some private lenders refer to their refinancing products as “consolidation loans.” However, these are not part of the federal student loan consolidation program. That program allows you to combine multiple federal student loans into one federal loan. You cannot include private loans in a federal consolidation loan.
Benefits of Federal and Private Loans
- Private loans can offer lower interest rates than federal loans, depending on your credit and financial situation. But they don’t have as many repayment options or protections as federal loans, such as:
- Loan forgiveness. Borrowers can have their federal student loans waived, waived, or canceled in certain situations, such as working for an eligible public service employer or becoming completely and permanently disabled.
- Income-related compensation. Borrowers who can’t repay their loans can enroll in plans that set monthly payments as a percentage of their income. Income-based plans forgive remaining balances after 20 or 25 years, although that amount is taxable.
- Guaranteed delay. If you are unemployed or in financial difficulties, you have the right to suspend payment through student loan deferral as long as you meet their requirements. These suspensions can often last up to three years.
You cannot transfer private student loans to the federal government to access these options. But if you want such features, you may be able to refinance your loans with a private lender that offers flexible repayment options.
For example, Earnest offers a program to change maturities and rates that can reduce payments, and CommonBond allows you to delay payments for up to 24 months, twice as long as many lenders refinance. However, other federal benefits, such as job-based loan waivers, are not available.
The best reason to refinance student loans is to save money. If you’re transferring private loans to another lender to get a payment feature, don’t pay more.
How to Consolidate Private and Federal Loans?
The only way to consolidate federal and private loans is with a private student loan refinancing lender. You cannot combine these loans through the government.
Before consolidating federal and private loans, make sure you don’t need the above benefits or qualify for programs such as Public Service Loan Forgiveness. If refinancing all your loans together is right for you, compare the rates of different private lenders to find the best deal.
Conclusion – How To Get Out Of Private Student Loan Debt
It can be challenging to stop paying student loans. Only in very rare cases can student loans be repaid in bankruptcy. For federal student loans, some options can lighten the burden of student loans, such as deferral or forbearance, which can be helpful for those who have short-term problems paying student loans. Another way to consider is income-based amortization plans that tie a borrower’s monthly loan payments to their income, which can help make monthly payments more manageable.
Refinancing could be another option to consider. Qualified borrowers can get a more competitive interest rate that could result in less interest earned over the life of the loan. This option will not be suitable for all borrowers, as refinancing federal student loans deprives them of federal benefits and protections such as deferment, forbearance, income-based repayment plans, and federal programs.