The Problem With Private Student Loan Repayment Options

The problem with private student loan repayment options

We’ve covered a lot of options for repaying federal student loans. But you might be wondering: “What about private student loan repayment options?”

It’s not that private student loans aren’t common. In 2007-08, the volume of private student loans issued peaked at $18.1 billion. Plus, recent statistics estimate that private student loans issued in 2012-13 totaled $6.2 billion.

While we’re committed to helping borrowers to repay both their federal and private student loans, there simply aren’t as many options for private student loan repayment. Likewise, except in rare cases, there aren’t any options for private student loan forgiveness.

Nevertheless, though it’s not preferable for students to take out private loans, it can be a last resort when they max out all other federal loan options. With that in mind, here’s some of the challenges and solutions for private student loan repayment.

Refinance private student loans

Your best option for relief from private student loan repayment might be to consolidate and refinance your private loans. You can refinance private student loans with a variety of banks. In this case, the goal is simple: Consolidate to interest rates that are lower than what you currently pay, which might also reduce your private student loan payment amounts.

First, however, there’s one important caveat. Unlike consolidating federal student loans, consolidating private loans isn’t automatic. You’ll need to apply and be approved. This is yet another reason why it’s important to improve your credit score, which will influence whether you’re approved.


If you’re having trouble with repaying your student loans, then your lender might offer you a few forms of limited relief. But beware: most of this forbearance is short term. It’s unlikely that you’ll be able to get long-term help, because private lenders simply aren’t required to offer you any sort of relief. In fact, any forbearance is strictly subject to their approval.

Discharging private student loans in bankruptcy

Discharging private student loans by declaring bankruptcy is another option that, though difficult, is not impossible. Some borrowers have discovered loopholes allowing them to discharge their private student loans via bankruptcy.

In the cases outlined here, private student loan debt was discharged when the borrowers claimed that their loans were not qualified education loans. While this might be good news for some people, the criteria (at least in this example) are fairly complicated and likely require a lawyer’s assistance.

Target private loan repayment first

If the above techniques don’t work, then your best remaining option might be to simply pay off your private student loans first. You can strategize your repayment by modifying the debt snowball method for private student loan debt.

Usually, you’d use the debt snowball method to prioritize payment of loans with either the highest interest rates or the lowest balances. If you have private student loan debt, simply prioritize those loans instead, by their variable interest rates or lack of flexible repayment terms.

In many cases, your private loans will have the highest interest rates of all. Or, they could see variable interest rate increases, which make them more expensive over time.

In any case, here are the steps to this modified debt snowball strategy:

1. Pay the minimum amount on all student loans other than your private loan with the highest interest rate.

2. Pay all extra possible toward the private student loan that you want to pay off first.

3. Continue to do this each month until the private student loan is paid off.

4. Once this loan is paid off, continue with the next private loan until it’s paid off as well.

If your private loans are small in value or have lower interest rates, then this strategy might not make clear financial sense right now. Just keep in mind that you always have more flexibility with federal student loans, should you have to  adjust your repayment strategy down the road. So, you might want to take every chance you have to pay off the private loans once and for all.

What are my other private loan repayment options?

I’m guessing that at this point in the post you expected a long list of other options, including private student loan forgiveness and a few income-based repayment plans. Unfortunately, these options simply don’t exist at the moment.

Here’s where federal and private student loan repayment show key differences, including that:

Private loans don’t have flexible repayment options. For private loans, there’s simply no such thing as income- based repayment or the other federal student loan repayment options that you’re familiar with.

Deferment generally isn’t available. Though deferment is available with federal student loans for students still attending school full-time, this might not be the case for private student loans. Plus, to take advantage of any forbearance options, you’ll have to be approved by your private loan servicer.

Private student loans can have variable interest rates that increase or decrease over time. They vary primarily according to the prime rate, which can change. When it does, you have little recourse with private loans other than to apply to refinance, and your approval isn’t guaranteed. By contrast, federal student loans always stay at the rate at which they were issued.

Consolidation through private loan refinancing isn’t guaranteed either. With federal student loans, you can consolidate qualifying federal student loans at any time. With private student loans, however, you’ll need to apply and qualify for these rates.

There is nearly no private student loan forgiveness. Private student loans rarely, if ever, qualify for forgiveness. For federal loans, however, you can have your loans forgiven through programs for public service loan forgiveness and income-based repayment, among others.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible Degrees 
Check out the testimonials and our in-depth reviews!
2.65% - 7.14%Undergrad
& Graduate
Visit SoFi
2.99% - 6.99%Undergrad
& Graduate
Visit Laurel Road
2.57% - 6.32%Undergrad
& Graduate
Visit Earnest
2.56% - 8.12%Undergrad
& Graduate
Visit Lendkey
2.57% - 6.49%Undergrad
& Graduate
Visit CommonBond
2.63% - 8.34%Undergrad
& Graduate
Visit Citizens
Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.