Are Private Student Loans Eligible for Loan Forgiveness?
With many private student loan borrowers graduating with excessive student loan debt, one of the biggest hopes these borrowers have is student loan forgiveness. However, finding loan forgiveness for private student loans can feel like a daunting task.
In general, there isn’t a lot you can do if you want your private student loans forgiven. However, there are some circumstances in which a private student loan might be discharged.
Possibilities for Private Student Loan Forgiveness
Even though private student loan forgiveness is rare, there are some possibilities. They’re slim possibilities, but they include:
- State student loan forgiveness
- Military loan forgiveness
- Disability discharge
- Death discharge
- For-profit college closure
- Inability of your servicer to prove ownership or that the debt is owing
Let’s take a look at each possibility, and what you might be able to accomplish, depending on your situation and your student loan servicer.
State Student Loan Forgiveness
Many states offer student loan forgiveness programs if you meet specific requirements, such as working in a high-need area or in a profession that’s in demand. However, many of these programs are limited to federal student loans.
Some states have their own private student loan programs, and, as a result, do offer some options for loan discharge when you meet certain criteria. Usually, though, you need to agree to stay in the state for a specific period of time and work with underserved communities.
States that offer their own private student loan programs include:
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Before you borrow private student loans from these programs, review the requirements associated with potential forgiveness. Not all of these states offer loan forgiveness options. If you qualify, it could be one way to discharge private student loan debt.
Some states, including Kansas, Maine, Maryland, Michigan, New York, North Dakota, Ohio and Rhode Island, provide student loan repayment assistance to borrowers who relocate to specific towns and counties.
Military Student Loan Forgiveness?
In the past, military service has resulted in loan forgiveness, since private loans weren’t expressly excluded. However, recent changes to the military student loan repayment programs have made it clear that private student loans aren’t eligible for military student loan forgiveness, just federal student loans.
If you become totally and permanently disabled, and are unable to work, your private lender might be willing to forgive the loan. However, you need to review the policies and paperwork associated with the loan. Some of the lenders that offer private student loan forgiveness for this situation include:
Not every private lender offers this option, but it’s a possibility if you find yourself in an unexpected situation. Several of the state lenders also offer disability discharges.
Check the terms of your loan to determine if the debt is forgiven when you die. In some cases, your estate might be required to pay off the rest of your loan. However, there are some private lenders that will discharge the debt when the borrower passes.
For cosigners, though, the terms might not be as generous. SoFi is one private lender that will offer private student loan forgiveness to the cosigner when the primary borrower dies. Many other private lenders, though, require cosigners to keep making payments.
For some cosigners, it might be worthwhile to obtain a term life insurance policy on the student borrower with a face value equal to the amount borrowed, if the loan does not offer a death discharge.
Even if a loan does not offer a death discharge, call the lender’s ombudsman and ask about their compassionate review process.
For-Profit College Closure
Depending on the situation, you might be eligible for private student loan forgiveness if you ended up stuck with a bill from a closed for-profit college. For example, Corinthian Colleges offered “Genesis” private loans. After Corinthian closed, they settled with the Consumer Protection Bureau (CFPB), and that included the forgiveness of some Genesis loans.
Additionally, the Federal Trade Commission (FTC) settled with DeVry University to discharge private loans issued through the college between September 2008 and September 2015. However, that loan forgiveness only applies if you got your private loan from DeVry, and not from an outside source.
Also look into state tuition recovery funds and performance bonds.
Your Loan Servicer Can’t Prove Ownership
Another strategy might be to force your loan servicer to prove ownership. Private student loans are sometimes sold to other lenders without the proper paper trail. The CFPB forced National Collegiate Student Loan Trusts to prove the ownership of hundreds of thousands of student loans, resulting in refunded payments for some borrowers.
If a servicer can’t properly prove ownership, they can’t collect on the debt — and that can be close to the same thing as private student loan forgiveness.
If you are sued to collect on a defaulted student loan, demand proof that the debt is owing, such as a copy of the signed promissory note.
Why is Private Student Loan Forgiveness Difficult?
Bottom line: private lenders want to be paid. The federal government wants to be paid, too, of course, but there are public benefits that come with programs like Public Service Loan Forgiveness and Teacher Loan Forgiveness.
While the government wants to encourage graduates to spend time in jobs that might not pay well but serve a greater societal purpose, private lenders are more interested in the bottom line. So, while the government offers student loan forgiveness options for federal student loans, these programs don’t apply to private loans.
Alternatives to Private Student Loan Forgiveness
If you’re struggling with private student loan debt, there are some options you can try to ease your cash flow or manage your debt a little more effectively:
- Forbearance: If you’re experiencing temporary trouble, many private lenders offer to allow you to stop making payments for a period of time. However, your loans will continue to accrue interest. Some lenders offer a partial forbearance, where you make interest-only payments instead of full payments of principal and interest.
- Refinancing: In some cases, you might be able to refinance your private student loans to a longer repayment term. You could end up with a smaller, more manageable monthly payment while you get back on your feet. However, extending the repayment term could be more expensive, even if you get a lower interest rate. Once you determine refinancing private student loans is right for you, Credible is a great tool that helps you compare multiple lenders. (Keep in mind refinancing federal loans means a loss in many irreplaceable benefits, including potential for forgiveness, possible widespread cancellation, payments based on your income, the ability to pause payments if you’re unemployed, and more.)
- Bankruptcy: Even with private student loans, it’s extremely difficult to receive a bankruptcy discharge. However, if you can prove that your payments are causing undue hardship for you and your dependents, you might have a chance.
Consider all your options when you’re struggling with student loan debt. Keep your federal loans and private loans separate so you can at least pursue student loan forgiveness programs for your federal student loans.
There aren’t many options when it comes to private student loan forgiveness, but if your situation is fairly dire, you might be able to work out a compromise, depending on who owns your student loans.