The Problem With Private Student Loan Repayment Options

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. 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 to help you understand what you are buying. Be sure to consult with 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.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

The problem with private student loan repayment options
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Refinancing with Earnest

Refinancing rates from 2.05% APR. Checking your rates won’t affect your credit score.

Check out Earnest

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:

  1. Pay at least the minimum amount on all student loans, both private and federal.
  2. 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.
  3. Continue to do this each month until the private student loan is paid off.
  4. 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 7 lenders of 2019!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

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 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 2.05% APR (with Auto Pay) to 6.49% 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 October 11, 2019, 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 10/11/2019. 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 hello@earnest.com, or call 888-601-2801 for more information on our student 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 SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR to 5.98% APR (with AutoPay). Variable rates from 2.05% APR to 5.98% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.05% APR assumes current 1 month LIBOR rate of 2.05% minus 0.15% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

3 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

ANNUAL PERCENTAGE RATE (“APR”)
This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

FIXED APR

Fixed rate options consist of a range from 3.75% per year to 5.80% per year for a 5-year term, 4.25% per year to 6.25% per year for a 7-year term, 4.55% per year to 6.65% per year for a 10-year term, 4.85% per year to 7.05% per year for a 15-year term, or 5.30% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan). The monthly payment for a sample $10,000 loan at a range of 3.75% per year to 5.80% per year for a 5-year term would be from $183.04 to $192.40. The monthly payment for a sample $10,000 loan at a range of 4.25% per year to 6.25% per year for a 7-year term would be from $137.84 to $147.29. The monthly payment for a sample $10,000 loan at a range of 4.55% per year to 6.65% per year for a 10-year term would be from $103.88 to $114.31. The monthly payment for a sample $10,000 loan at a range of 4.85% per year to 7.05% per year for a 15-year term would be from $78.30 to $90.16. The monthly payment for a sample $10,000 loan at a range of 5.30% per year to 7.27% per year for a 20-year term would be from $67.66 to $79.16.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.

VARIABLE APR

Variable rate options consist of a range from 2.50% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 4.25% per year to 6.40% per year for a 10-year term, 4.50% per year to 6.65% per year for a 15-year term, or 4.75% per year to 6.90% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.45% to 4.25% for the 5-year term loan, 1.95% to 4.30% for the 7-year term loan, 2.20% to 4.35% for the 10-year term loan, 2.45% to 4.60% for the 15-year term loan, and 2.70% to 4.85% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 2.50% per year to 6.30% per year for a 5-year term would be from $177.47 to $194.73. The monthly payment for a sample $10,000 loan at a range of 4.00% per year to 6.35% per year for a 7-year term would be from $136.69 to $147.77. The monthly payment for a sample $10,000 loan at a range of 4.25% per year to 6.40% per year for a 10-year term would be from $102.44 to $113.04. The monthly payment for a sample $10,000 loan at a range of 4.50% per year to 6.65% per year for a 15-year term would be from $76.50 to $87.94. The monthly payment for a sample $10,000 loan at a range of 4.75% per year to 6.90% per year for a 20-year term would be from $64.62 to $76.93.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.

MAXIMUM RATES

Borrowers who take out a variable loan with a term of 5, 7, or 10 years will have a maximum interest rate of 9%. Borrowers who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

FEE INFORMATION

There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.

LOAN AMOUNT

For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for more information about refinancing ParentPlus loans.

ELIGIBILITY & ELIGIBLE LOANS

Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.

INTEREST RATES

The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.

DISBURSEMENT OPTIONS

The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.

POSTPONING OR REDUCING PAYMENTS

After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of October 1, 2019 and is subject to change.


4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.05% effective September 10, 2019.


6 Important Disclosures for LendKey.

LendKey Disclosures

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.


7 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 09/23/2019. Variable interest rates may increase after consummation.

2.05% – 6.49%1Undergrad
& Graduate

Visit Earnest

2.05% – 5.98%2Undergrad
& Graduate

Visit SoFi

2.25% – 6.65%3Undergrad
& Graduate

Visit Laurel Road

2.43% – 7.60%4Undergrad
& Graduate

Visit Splash

2.14% – 7.21%5Undergrad
& Graduate

Visit CommonBond

2.01% – 8.88%6Undergrad
& Graduate

Visit Lendkey

2.74% – 6.24%7Undergrad
& Graduate

Visit College Ave

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.