Private Student Loan Relief Options
When it comes to student debt, your loans will either be federal student loans or private student loans. Federal loans are issued by the United States Department of Education and often provide more flexibility through public assistance programs. Unfortunately, private student loans are issued by private banks, credit unions or lenders and are much more difficult to forgive or obtain relief.
The only way that an individual with private student loans could expect some type of relief or forgiveness would come with the passing of congressional legislation that would pass some type of blanket forgiveness. While some political leaders have attempted this, there are strong court blocks and legislation back and forth on the topic – it’s not looking like blanketed forgiveness for private loans is as possible as one might have thought.
With that all said, though, you still have options that you can pursue for private student loan relief. Let’s take a look at some different ways that you could put yourself in a better position to pay off your private loans or, in the worst-case scenario, pursue some type of lump sum settlement.
Consider Refinancing
Depending on the size of your interest rate (or rates) on existing private student loans, you might have an opportunity to consider refinancing. Let’s say, for example, you have a total of 5 private student loans that you need to pay back. On average, let’s say those interest rates are 6%. If you were to refinance, you could consolidate all of that debt into a single loan with say 4% interest. You can use the proceeds from that new loan you took out to pay off all 5 of the private student loans, allowing you to focus payments on a single loan with a lower interest rate than the previous loans you had.
Typically, refinancing comes with a catch – it’s often reserved for applicants with high credit scores and stable incomes. To pursue this option, you might need to set up a co-signer with someone you know who has excellent creditworthiness.
Career-Based or Employer-Assisted Loan Relief
A great option for those of you who have a job or are looking for one is to pursue some type of career-based or employer-assisted loan relief. One of the most common examples of career-based loan relief is for anyone who has work experience in a public service field like a teacher or police officer. If you work and make 120 qualified payments, your private loan can be relieved!
Beyond that, you could also pursue employer-assisted loan relief. Some employers, for example, will match payments up to a certain dollar amount on an annual basis. For example, your employer might match up to $5,000 of student loan payments per year. This means that if you were to make $5,000 of payments towards your private student loan, your employer would also contribute $5,000, effectively eliminating $10,000 of your loans over the year!
Consider deferment or forbearance
If you’re looking for temporary relief while you’re struggling in a short-term situation, it might be in your best interest to consider deferment or forbearance. These two options are somewhat similar but do have some key differences that might impact your decision.
Deferment, on the one hand, is a temporary pause on student loan payments that can be granted by your lender. During a deferment, your loan will not accrue interest and will not require you to make payments. Some reasons that a lender will grant deferment include military service, low income or means-tested benefits like welfare.
Forbearance, on the other hand, is a temporary reduction or postponement of student loan payments. The critical difference between this option and deferment lies in the fact that forbearance does not pause or stop interest accrual. While under forbearance, your loans will continue to accrue interest which will ultimately result in higher loan payments down the road.
Negotiate Debt Settlement
Arguably your last route to pursue is some type of debt settlement with your lender. Assuming you’re unable to make the payments required on your private student loans, you could reach out to your lender and arrange some type of debt settlement.
Say you have $50,000 of debt but are unable to make the loan payments consistently. You could arrange with your lender a lump sum settlement of say $25,000 on the loans which would completely cover your student loan debt.
This is viewed as a last option as it will significantly harm your credit score and will have a lasting impact on the health of your credit.
Escape the Burden
When it comes to private student loan relief, it is extremely unlikely that you will be able to get your loans completely forgiven or relieved. With that said, though, you still have a ton of options that could assist you with the repayment and partial relief of the existing loans that you have.
As you analyze your options, be sure to consider the credit implications and find an option that will work the best for you and your life!
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