There are very important differences between government loans and private loans. If you take out a private loan, you will not be eligible for the same types of discharge, deferment and forbearance options that are available for federal loans. However, some private lenders may choose to offer cancellations or other relief in certain circumstances. You should check with your lender and ask about these options. Some private student lenders also offer deferments and forbearances, but these vary by program. Read your loan contract very carefully to learn about your private loan’s terms, conditions, benefits, rates, fees and penalties. Private lenders do have to honor any promises they make about terms and benefits.
Private student loans repayment is generally more difficult for financially distressed borrowers. Private loans do not have the same range of flexible and affordable repayment plans. Private lenders may offer flexible repayment plans or other affordable options, but they are not required to do so. They must at least fulfill any promises they have made about the types of options they offer. Some lenders will charge for these services.
You should review your private loan contracts carefully to better understand what rights you have. Many private lenders will offer short-term repayment relief such as interest-only repayment plans. Borrowers should review these plans carefully to evaluate whether the plans are likely to help in the long run.
Many private student lenders also offer small reductions in interest or other benefits for consecutive on-time or automatic debit payments. You should be careful as these “deals” are not always what they seem to be. Some lenders offer incentives that very few borrowers ever achieve. Many private lenders will offer short-term repayment relief such as six-month interest-only plans. Borrowers should review these plans carefully to evaluate whether they are likely to help in the long run.
Co-Signers
Private lenders may pressure or even require you to get a co-signer. A co-signer is a relative, friend or someone else who agrees to be responsible for your debt. Co-signers must understand that they are responsible for paying back the debt just as if they had received the money. The CFPB has sample letters to help you request that the lender release a co-signer from an account. Many lenders advertise that a co-signer may be released after a certain number of payments or other requirements, but do not let you know when you are eligible.
There is no specific federal law that requires private loan creditors to offer relief. If you are having trouble with a private loan, you should request a copy of your loan agreement to see whether the lender promised you any particular type of relief. You can also contact your lender to try to negotiate flexible repayment and other loan modifications.
Private Consolidation Loans
Borrowers cannot consolidate private student loans with the federal consolidation loan programs. However, if you have private loans, you may want to think about consolidating these loans into a new private consolidation loan. This may be a good idea if you want a single monthly payment. You may also be able to get a better deal if, for example, your credit score is better now than it was when you first took out the private loans.
It is very dangerous to consolidate federal loans into a private consolidation loan. You will lose your rights under the federal loan programs once you choose to consolidate with a private lender. These include deferment, forbearance, cancellation and affordable repayment rights. Also, federal consolidation loans generally have lower interest rates.
Loan Cancellation
You can ask your private lender for relief, but these lenders are not required by law to help you. Some private lenders are now offering disability and death discharges. Sallie Mae, for example, announced a total and permanent disability program for Smart Option borrowers, as well as forgiveness of unpaid balances if a primary borrower dies. The discharge form will likely look something like this, but you should check with Sallie Mae to make sure you have the most current form.
Read your loan contract very carefully to learn about your private loan’s terms, conditions, benefits, rates, fees, and penalties. Private lenders do have to honor any promises they make about terms and benefits. Some private lenders offer a cancellation program for some loan products, but not others. Some will offer to cancel only a portion of a loan in certain circumstances.
Settlement
Private student loan settlements are difficult to get but are possible in some cases. There are no specific laws or regulations requiring private lenders to offer settlements. The policies and programs vary considerably by lender.
Private lenders will offer settlements in some cases. However, the lenders generally require very large lump sums to settle debts, even from borrowers with low incomes.
Most private lenders will not even discuss settlement or modification until the loan is in default or written off. At this point, the borrowers’ main point of contact is usually a collection agency. Interestingly, the collection agencies working on behalf of the lenders will often settle for smaller amounts than the originating lenders.