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While federal student loans offer several ways to lower payments, private student loans borrowers have fewer options. Unfortunately, this leaves the borrowers who hold the $108.2 billion in outstanding private student loans, per the Q1 2017 Measure One report, at the mercy of their lenders.
Each private lender gets to decide if it will offer student loan forbearance or other assistance. Unfortunately, most private lenders provide only limited or no help adjusting payments.
Borrowers who have private student loans or students considering getting one should learn about these limitations and how they can affect repayment. Here are some of the challenges (and corresponding solutions) for private student loan repayment.
Refinancing private student loans
Your best option for relief from private student loan repayment might be to refinance your private loans. You can refinance private student loans with a variety of banks. In this case, the goal is simple: refinance student loans 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. You’ll need to qualify for student loan refinancing. This is yet another reason why it’s important to improve your credit score, which will influence whether you’re approved.
Private student loan forbearance
If you’re having trouble with repaying your student loans, then your lender might offer you a few forms of limited relief. The best lenders provide the option to defer or forbear private student loan payments.
However, this forbearance is usually only offered in specific circumstances and is subject to the lender’s approval. Plus, private student loan deferments and forbearances are designed to give you a temporary break from payments, not long-term relief. After your forbearance is up, a private lender will expect you to resume paying this debt.
Private student loan forgiveness
If you’re hoping to get rid of private student loans through forgiveness or bankruptcy, don’t hold your breath. Both outcomes are fairly rare.
There are some programs that provide private student loan forgiveness, often dependent on your occupation or employment. These can be worth exploring, especially if you apply for federal student loan forgiveness options.
Bankruptcy discharge for private student debt
Discharging private student loans through bankruptcy is difficult, and in most cases won’t be possible. Still, private student loan discharges are sometimes granted in cases of extreme hardship, or if the borrower used the loans to attend a for-profit school they claim defrauded them.
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.
Private student loans with variable rates
Unlike federal student loans, which all have fixed rates that don’t change, private student loans can have variable interest rates that increase (or decrease) over time, based on overall market rates.
When your interest rates go up, you have little recourse with private loans other than to apply to refinance. Keep in mind that you’ll need good credit to get student loan refinancing rates that beat what you’re currently paying.
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. You’ll need to list your debt and decide which student loans to repay first. Since private student loans have fewer benefits and protections, it can make sense to target those first.
If you decide to do so, simply modify the debt snowball method to prioritize payment of private student loans:
- Pay at least the minimum amount on all student loans, both private and federal.
- Find extra funds in your budget and make a monthly extra payment toward the private student loan that you want to pay off first. This could be the loan with the highest interest rate, lowest balance, or worst forbearance options.
- Continue to do this each month until the private student loan is paid off.
- Once this top-priority private student 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.
Despite these potential issues with repayment, a private student loan can still make sense for some students and borrowers. If you’re aware of these drawbacks, you can shop for the best private student loans that provide these protections. Once in repayment, you can proactively manage private student loans to avoid these problems.
Jeffrey Trull contributed to this post.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|