Private Student Loan Forgiveness

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Student Loan Debt: Female college student
HIGHLIGHTS
  • Recently, the CFPB proposed new disclosure rules for lenders of student loans.
  • A proposed bill would forgive some private loans.
  • Private student loans total about 15% of outstanding student loan debt.

Proposed Law Would Forgive Some Private Student Loans

Student loan debt, and borrowers’ problems repaying student loans are growing. Today, federal student loan debt is $900 billion, and private student loans total $140 billion.  Defaults total more than $8 billion, representing 850,000 distinct loans. Many struggling borrowers are calling for private student loan student loan forgiveness, to ease the burdens caused by paying their private student loan debt.

If you are one of the 37.1 million people in the US with a student loan today, your options for handling federal and private student loans differ. Federal student loans are taken out by the students themselves or by their parents, who take out PLUS loans. Most student loans do not have co-borrowers.  The Dept. of Education offers a variety of deferment, forbearance, and repayment plans for federal borrowers.

Private student loans almost always have a co-signer, and lenders will collect a private student loan from a co-signer if the primary borrower defaults. Because a co-signer is usually a close family member, a delinquent private student can cause a problem for a whole family, and not just the borrower. Private student loan lenders lack the extensive array of repayment and consolidation the Dept. of Education offers.

New Regulator on the Block: The CFPB

The Consumer Financial Protection Bureau (CFPB) is a new federal agency. The CFPB is responsible for "... mak(ing) markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products." The CFPB’s first action was to create an online survey to learn what the biggest concerns were among consumers. The top three were credit card disclosures, mortgages, and student loans.

Congress mandated that the CFPB oversee the student loan industry. As part of its initial review, the CFPB published nearly 2,000 comments about the experiences consumers had with private student loans. The CFPB’s preliminary findings identified many problems, including:

  • Lack of good information: Students were unclear what loans to take and what they will owe when they leave school. Also some borrowers were surprised to learn their loans were private instead of federal.
  • Students overwhelmed by debt: Part of this may be due to the lack of disclosures, and to a weak economy where recent college grads face high unemployment and underemployment.
  • Complicated or hostile billing: Borrowers expressed a desire to repay their loans, but in hardship situations, they faced limited loan repayment flexibility.

The CFPB recently released draft student loan disclosure forms it proposes lenders must use. The forms disclose the interest rate, and eventual monthly payment amount for every student loan. The CFPB hopes this clear and consistent disclosure will spell out how much the student will need to pay each month when they leave school. It will also eliminate surprise loans some unscrupulous schools disguise as grants.

Student Loan Forgiveness Today

Federal loan borrowers have the option to have their loans forgiven or their payments reduced.

If you work in a public service job, you may be eligible to have your federal student loans forgiven. The Public Service Loan Forgiveness (PSLF) discharges remaining student loan debt after 10 years of full-time employment in public service. Your income is not a factor in eligibility, but you must be current on your loan payments.

Some states, such as Kansas and New York, offer partial repayment of their student loans if you relocate to a low-population area. Also, 30 states offer partial student loan repayment if you work in the dental or medical fields.

With federal student loans, you have several options if your payments cause you distress, including:

  • Deferment: A postponement of payment on a loan, during which interest does not accrue if the loan is subsidized. You qualify if you are enrolled half-time or more in college, are unemployed, or meet a the Dept. of Education’s standards for hardship. Deferments can last up to three years.
  • Forbearance: Forbearance may be an option, if you don’t qualify for a deferment. Forbearance allows you to stop making payments temporarily. Common reasons for getting a forbearance are illness, financial hardship or serving in a medical or dental internship or residency.
  • Income-based repayment (IBR): Your monthly payment is capped at an amount intended to be affordable, based on your income and family size. You’re eligible for IBR if your monthly IBR payment will be less than the monthly amount in a 10-year standard repayment plan.
  • Income contingent repayment (ICR): Your monthly ICR payment amount is reset each year, based on your annual gross income on your federal tax return.
  • Other plans: Other federal repayment plans include graduated repayment, extended repayment, and income-sensitive repayment.

Expanded Student Loan Forgiveness Options

Solutions that bring some relief to student loan borrowers. The Student Loan Forgiveness Act (H.R. 4170), was introduced in March of 2012, Rep. Hansen Clarke (D-Mich.). His proposal includes:

  • Consolidating some private loans with federal loans, with many restrictions, to add the benefits available to federal student loan holders to some private student loan holders
  • Improving forgiveness of federal loans
  • Keeping rates down for federal loans
Quick Tip: Bills.com offers many tools and resources about student loans. If you are having trouble paying your student loan then check out the Bills.com article about stopping garnishment on student loans.

Private Student Loan Forgiveness

Currently, there are no private student loan forgiveness options available. Today, if you are having trouble with your private student loans, your only options are to:

More About Student Loans
Need a Student Loan? Start Here!
Student Loan Consolidation
Private Student Loan Default
What to do if You Default on a Federal Student Loan
How to Pay Off a Student Loan
Help with Your Student Loan Debt
Settle a Private Student Loan
  • Consolidate your loan
  • Work out something with your lender
  • Try to work out a loan modification,
  • File for Chapter 13 bankruptcy to work out an affordable payment (this does not forgive your student loan debt)
  • Default and face collection efforts, including lawsuits, judgments, bank levies, and wage garnishments

Although there are renewed calls to wipe out some private student loan debt, enacting principal forgiveness in private student loans would be a huge shift in the lending world. It may result in fewer private lenders in the marketplace and fewer loan options for students. The federal government would have to step in, if current lending levels are to be maintained.

The CFPB is asking for additional input from consumers. The CFPB is going to offer some suggestions, but it is not clear what kind of reform they can put in place.

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Comments (15)


Emanuel B.
Sleepy Hollow, IL  |  March 13, 2014
I have a private student loan that defaulted this past December. I was behind due the the fact I was jobless and when I found a job I didn't make enough to pay them. I arranged a payment before it went into default but then I received a call and letter saying it defaulted because the payment was returned. I don't know why it was returned because there was money in the account. Now I don't know anything about the loan. I've contacted the original borrower and creditors on it but no one has information on it and haven't heard anything on it. I also have a co-signer on it but I don't want it to affect him. What can I do? Can I get it out of default? Or get my cosigner off it?
Bills.com
March 27, 2014
Call the servicer and try to restart the negotiation process.
Jean S.
Benton Harbor, MI  |  March 12, 2014
I have a private student loan my sister co-signed but since she have filed bankruptcy. I am disabled at this time. I have not been permanently declared disabled, but I am unable to work. I can't make my payment and they continue to call my sister. Is there any way I can get this loan forgiven?
Bills.com
March 13, 2014
There is no formal private student loan forgiveness program that is equivalent to federal student loan forgiveness.

It sounds like your sister was not able to include her responsibility for the loan in her BK. If she has included it, she could stop the calls, but it would not have removed your responsibility.

Your options are limited. You could:
  1. See if you are able to include it in a BK, though that would leave your sister on the hook, still. It is difficult, but not impossible to discharge a private student loan debt via BK.
  2. Try to negotiate a settlement with the lender. If they are not able to collect from you or your sister, they may be open to a settlement.
Stephany B.
Bradford, NY  |  March 10, 2014
I have about $63,000 in student loans -- $32,000 in private loans. I am struggling to make these payments. I am so overwhelmed. I was not aware that I was taking out private loans because the college I attended was very unclear about it. I also was set up on graduated repayments so at first it was manageable then the payments doubled and all together my are over $600/month. I called and tried to see if i could change out of graduated payments or do income-based payments and they told me there was nothing i can do -- either pay or have my wages garnished. But as things get harder to pay it is going to come to that i have to make sure my children are cared for and we have a roof over our head and they have food to eat. I am beyond frustrated and stressed i feel that they have more options i never thought graduating college that i wouldn't get a job in the field i went for and would be struggling like this. Now i am being forced to choose between giving my kids the basics and paying student loans, and ruining my parents lives, and credit because they cosigned and they can't afford to pay the payments either. I can't claim bankruptcy on them, i can't pay them, and no one is willing to help. I feel helpless.
Sean P.
Nashville, TN  |  December 02, 2013
I owe about $60,000+ to Mohela and about $75,000+ to Sallie Mae; about $140,000 total. I graduated in 2007 with just a BS in Biology. I now work fulltime at a nonprofit organization in my field of study but make less that $24,000/year. I have yet to make the full payment to either student loan institution, but instead I'm in Income Contingency Plans or a time-limited Rate Reduction Plan. I'm paycheck to paycheck and with my student debt causing a low credit score, I cannot get any other loans. I'm a fish out of water and I don't know what to do. My co-signer is deceased and there isn't any other family help. I wish there was something that would make my college decision a positive and not a financial negative.
Gabi D.
Bisbee, AZ  |  September 24, 2013
I owe almost an entire house in private loans. Because I was a dependent at the time, my parents co-signed. I now work in Arizona and make very, very little money and not enough to afford $400 a month for Sallie Mae. Why are private loan vendors not being mandated to provide income-based repayment plan? THAT'S ALL I NEED. Who cares if there are less vendors -- good! Private loans are absolutely horrible -- and Sallie Mae will haunt me for the rest of my life. I will die before I pay her off :(
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Anita B.
Roswell, GA  |  November 19, 2013
I am a co-signer on my brother's student loan from 2006. Was not aware of the type of loan. I think it's private though. :-( I thought my brother was paying on it, but after he couldn't finish due to a disability, Sallie Mae and a collection agency have hounded me. I set up payments and paid. Then I was sent to two other collection agencies who raised the amount required to pay each month. I cannot afford this loan. I can pay $150 a month for 11 months and still owe $1,100 more than when I started paying that amount. The interest rate is UNBELIEVABLE!!!!! I CAN NEVER PAY THIS OFF! I DIDN'T EVEN GET TO BENEFIT FROM GOING TO SCHOOL! There needs to be a forgiveness for private loans. Why should it be any different from a federal loan? I think that if anyone was getting a loan, they would only get a federal if this is the case. Come on! I've done my part as a co-signer and payed a fair amount. I don't know what else to do! :'-(

P.S. This loan has not only affected my credit, but I can't even purchase a car now.
Sara S.
Lansing, MI  |  September 20, 2013
I owe $80,000 in student loan debt. I recently had a free consultation with a lawyer to discuss my options about bankruptcy. He advised me that it would be impossible to get any of my student loans discharged. I am in default on multiple private student loans. I have my federal loans in deferment for now but I don't know what I am going to do. I live paycheck to paycheck, barely scraping by. I feel helpless and no one wants to give me any decent advice that will actually HELP! Eventually my paychecks will be garnished and I will have no way to even pay rent!
Bills.com
September 25, 2013
Research your state's collection laws to learn if you have the right to object to a wage garnishment for the reason you stated. Some states allow a court to modify a judgment, and others do not.

If paying off your student loans is your No. 1 concern, focus your job search on public service jobs whereby your federal loans can be forgiven after 10 years of service. Or, look for municipal jobs where student loan forgiveness is part of the job package.
Dawn B.
Fredericksburg, VA  |  September 04, 2013
My husband and I tried to do the right thing by allowing our two children the opportunity to attend college. Not having attended college ourselves, we followed instruction and advice of college financial offices being assured that payback would be a breeze after graduation. We made a good income so co-signing was never a problem as loan after loan was approved, after all, who would ever dream that we would end up with all the debt. Our son never finished his degree because life happened and he needed to be employed full time. Our daughter did graduate with a BS however the economy could not support her income requirements to repay such large monthly payments. We were told that only the smaller federal loans and our plus loans could be consolidated into affordable payments. My husband and I have never missed a payment on our portion of student loans for the past 9 years ($900 per month). All of the other loans of which we are co-signed are in arrears or even charged off because our efforts along with our children's, to send in small monthly payments affordable to our budget and above what the kids could send, has been a waste of time and the money. We have never defaulted on any bill in our 37 years of marriage, except of course these co-signed loans and yet we still try to keep paying every month on each of them. Our once pristine credit worthiness has been destroyed and we can find no one that can offer a workable solution. What financial future do we all have?
Bills.com
September 05, 2013
I surmise you have two sets of loans: federal and private. Separate the two, and deal with the federal loans first. Read 5 Steps to Consolidate a Federal Student Loan to get your federal loans under control. Next, negotiate with the private student loan lenders to change the terms on the private loans.

Also, talk to a lawyer with bankruptcy experience, in particular one who is up to date on student loans in bankruptcy. On the surface, the law makes it very difficult for student loan borrowers to discharge student loans in bankruptcy. But student loan bankruptcy law is evolving, and you may have an argument to have some or all of the loans discharged if there's no hope of ever repaying them.
Michelle P.
West Deptford, NJ  |  June 17, 2013
This article was absolutely helpful. However, when I was 18 needing a student loan I didn't know that there was a major difference between the type of loans to take out, and so I took out private loans. Now, I am kicking myself for this and just hope that our government will step up and do something for us.
Andrew S.
Helenville, WI  |  October 13, 2012
Your articles are helpful, but all the "solutions" pertaining to Private Student Loan help, consolidation, or dismissal is very frustrating. My wife started college while working part time so we would not have to take out as many loans. All federal loan options were exhausted so we turned to the private sector. As time progressed, trying to achieve attending school full time, working part time, raising a family, and running a household just does not work. To expedite the time in which she would graduate as an RN, we decided to take out private student loans in lieu of working to help pay bills (run a household). Not fully understanding what our monthly payments would be, we took out private loans. Now, at the wage that I was making as a carpenter at that time, I can't believe how much the lender borrowed us. Since then, I lost that job due to the fact that the company closed down because not enough people can afford to build new houses now. My wife did graduate, but is not earning nearly as much as what was projected at that time due to wage freezes. I also am employed now, but not earning as much as I was before 2008. All combined, our loans total (Federal and Private) around $200,000.00. We have 3 children that we are trying to provide for a basic means of living. Our parents help out as much as they can but they are on fixed incomes. It would be nice if the Government would recognize the $1 Trillion Student Loan Debt like they bailed out the banks. For as long as we will have to pay on these loans(20 plus years) we will have very little money to set aside for our own retirement, as we are already almost 40yrs. old. As it is, we live paycheck to paycheck and are actually in the negative every month. Trying to help save money for our children's higher education is not even an option right now. In addition to all of that, after I lost my carpentry job I fell ill to Ulcerative Colitis and ultimately had to have my large intestine completely removed. Partly due to that, and that all the loans came due at that time, we were very overwhelmed with bills. We ended up filling up our credit card to make ends meet. With that and medical bills, we now are actually filing Chapter 7 Bankruptcy. With my lack of intestine situation and the fact that my wife was diagnosed with Rheumatoid Arthritis over 9 years ago, and the fact that our financial situation will not improve anytime soon, I believe we might be able to prove "undue hardship" in court to help relieve our financial burden.
Bills.com
October 14, 2012
Andrew, it is certainly worth speaking with an experienced bankruptcy attorney, to get a better understanding of what it akes to meet the court's test for including the student loan debt in a Chapter 7 bankruptcy. If you're not able to do so, try to get into an Income Based Repayment plan on the federal portion of your debt.
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