Can Private Student Loans Be Forgiven?

Private student loans are rarely forgiven. They can’t be canceled because you work in public service, made payments for 20 years, or attended a crooked for-profit school. Those forgiveness opportunities are available only to federal student loan borrowers.

The one time borrowers with private loans can get any relief is when they become disabled or die. And even then, their cosigner may be left on the hook to pay the remaining balance.

Federal lawmakers have introduced various bills over the years to try to change this, but none of their efforts have been successful. Private student loan borrowers are still without relief.

Mass student debt cancellation by the president is unlikely to change that. None of the programs the Biden administration has introduced throughout the pandemic — the freeze on interest and payments, fixes to existing forgiveness programs, and so on — have benefitted borrowers with private loans.

The simple truth is this: forgiveness isn’t an option for most people with private loans. So if you’re struggling to make your monthly payments and your lender refuses to help, you’ll need to explore other options like student loan refinance, settlement, and bankruptcy.

Unfortunately, there are few private student loan forgiveness programs, and it doesn’t appear that the Biden administration or Congress will pass laws to help.

• Citizens Bank: forgives the remaining student loan balance if the borrower dies and releases the cosigner from responsibility. But if the cosigner dies, the primary borrower is responsible for the remaining amount due. Contact Citizens Bank’s customer service at 866-259-3767 to inquire about forgiveness of the balance due to disability.

• College Ave: forgives the loan if the borrower dies or becomes permanently disabled. The cosigner’s death or disability does not affect the loan.

• Discover Bank: forgiveness happens upon the primary borrower’s death or permanent disability.

• Navient: forgives some private student loans if the primary borrower becomes permanently disabled. Depending on the type of loan, the cosigner may still be responsible for payment if the borrower dies.

• PNC Bank: cancels the balance if the borrower dies, but not if the cosigner dies. Contact PNC’s customer service team at 800-762-1001 to find out options for disability discharge.

• Sallie Mae: waives the current balance if the borrower dies or becomes permanently disabled. If the cosigner dies or becomes disabled, the student remains responsible for payment.

• SoFi: if the student dies while in school or in repayment, the loan balance is forgiven. If the cosigner dies, the student remains responsible. Contact SoFi’s customer service team at 877-292-7470 to find out options for disability discharge.

Forgiveness and tax liability. The American Rescue Plan, signed into law by President Joe Biden in August, included a provision prohibiting the IRS from collecting income tax on student loan debt cancellation between 2021 and 2026.

Private student loan borrowers can’t count on President Biden to forgive their debt. So far, Biden and the U.S. Department of Education have canceled the debts of disabled people, those defrauded by defunct for-profit schools, soldiers deployed to war zones, and public service workers. But targeted relief for soldiers, disabled borrowers, and scammed students is totally different from broadly canceling student debt.

Still, progressive lawmakers continued to push Biden for blanket loan cancellation amid negotiations on his Build Back Better framework. However, student loan forgiveness was excluded from the nearly $2 trillion bill. It’s unlikely Democrats have the votes to cancel student loan debt.

• Co-signed a private student loan? If you’ve co-signed a private student loan, you have a financial responsibility and legal obligation to ensure the loan is repaid. Missed payments can hurt your credit and the borrower’s credit score.

• FFEL Loans vs. private student loans. Borrowers who attended college before 2011 could borrow federal student loans under the Federal Family Education Loan Program. Private lenders made FFEL Loans, and those loans were backed or guaranteed by the federal government. Those types of loans can be consolidated into a Direct Consolidation Loan, whereby they would be eligible for flexible student loan repayment and forgiveness programs, including the Public Service Loan Forgiveness (PSLF) Program. Private student loans made outside the Federal Student Aid system cannot access any of those same benefits.

Financial institutions rarely forgive private student loans because there’s no incentive for them to do so. Their mission is to make money — not lose it. This is why banks and credit unions check borrowers’ credit reports before approving loan applications. The companies assess risk and price it accordingly by adjusting the interest rate.

The federal government has different objectives. Not only does it need to ensure people pay back the money they borrowed, but it also must be concerned with ensuring everyone who wants to attend college can pay for it. That helps explain why the Education Department offers Pell Grants and lets people borrow student loans regardless of their credit scores.

The government must also encourage talented individuals to enter the classroom, provide medical services in low-income areas, practice law in rural areas, and so on. It tries to do that by offering income-driven repayment plans and debt cancellation programs like Teacher Loan Forgiveness and Public Service Loan Forgiveness.

Learn More: PSLF Waiver

While there are few formal student loan forgiveness programs for private loans, there are still plenty of options for relief.

• Loan Payment Assistance Programs: many states have programs that award loan repayment assistance to borrowers that work in certain professions. Eligibility requirements vary by profession, but the most common occupations are medical professionals and lawyers. Other career paths may qualify depending on where you live.

• Refinance: borrowers with good credit and clean credit history may get a lower interest on their private student loans by refinancing. Many lenders will let you choose between a fixed interest rate, which stays the same until you pay the loan in total, and a variable interest rate, which goes up or down depending on the market. Check out my guide to student loan refinancing to compare options.

• Settlement: private student loan companies accept settlements for borrowers who have missed monthly payments and defaulted on their accounts. Settlement terms vary by lender, but many student loan settlements are rarely for pennies on the dollar. It’s not uncommon to reach an agreement for 40-70% of the current loan balance paid in a lump sum, monthly payments, or a mix of the two.

• Leftover 529 plan funds: federal law allows borrowers to use money leftover in 529 college savings plans to repay up to $10 thousand in qualified education loans per borrower. You can also put this money toward a beneficiary or their sibling.

• Permanent disability and death: loan cancellation for permanent disability is an option depending on your student loan lender. It also may be an option if the primary borrower dies. But some lenders will still go after the cosigner — even if the deceased was the cosigner’s child.

• Bankruptcy: although the process is not without hurdles, private student loans can be discharged in bankruptcy. You’ll first need to file a Chapter 7 or Chapter 13 bankruptcy. After you get a discharge, you’ll need to file an adversary proceeding and prove the private student loans are an undue hardship.

Even though private student loan cancellation is unlikely, there are still strategies you can take to deal with the debt.

1. Pause payments on federal student loans

If you have federal and private loans, lowering or pausing the payments on federal loans and then redirecting that money to pay off your private loans quickly makes sense for two reasons. First, private student loans typically carry higher interest rates than federal loans. Second, they have fewer options to access affordable repayment plans. Your total federal student loan debt will increase due to interest accruing during this time. But you can take advantage of repayment plan forgiveness after making at least 240 qualifying payments.

2. Refinance for a lower interest rate

You could also consider refinancing your federal student loans, especially if you have higher interest Parent PLUS Loans. You’ll need a good credit score and enough income to cover your living expenses and credit card debt to qualify for the best interest rates. Use a site like Credible to compare loan terms and repayment programs with multiple lenders.

Note: Moving a federal loan from the government to a private lender makes the loan ineligible for the Public Service Loan Forgiveness Program and flexible income-based student loan repayment options.

3. Talk with your lender about repayment options

Private student loan servicers typically offer temporary interest-only repayment terms and deferment or forbearance options, which lets you postpone payments. Deferment is usually an option if you return to school or are active-duty military. Forbearance is typically an option for borrowers experiencing financial hardship due to job loss or medical issues.

You may have other options to lower your monthly bill. Contact your servicer to learn your options.

As coronavirus pandemic-related relief draws to a close and student loan payments become due, scammers have ramped up attempts to defraud people out of their money. Scammers may claim you’re eligible for immediate loan forgiveness through “Biden Loan Forgiveness” or “CARES Act Loan Forgiveness”. These student loan discharge programs don’t exist.

The U.S. Department of Education has expanded loan forgiveness opportunities for disabled persons and borrowers defrauded by defunct schools or working full-time for the government or a nonprofit. But none of those changes affect private student loans. So if someone contacts you and asks for personal information or money to cancel your student loan debt, it’s a scam.

There are many options to get relief for your private student loans. If you want help developing a strategy to deal with your student loans, I’m here to help. My entire law practice is dedicated to helping borrowers with federal and private loans.

Schedule a phone call with me today. We’ll work together to develop a plan that allows you to meet your future goals.