The cries for student loan forgiveness or debt cancellation continue to grow louder. While there has been some movement on federal loan forgiveness, options for private loans have not gotten much discussion.
The reality of the situation is that private loan forgiveness is either a long way away or will never happen. However, there are a few tricks that borrowers can use to help their cause.
Private Debt Cancellation Probably Won’t Come From The Federal Government
For a moment, it looked like private student loan borrowers might get some help from Uncle Sam. Presidential candidates Elizabeth Warren and Bernie Sanders both proposed plans to cancel private debt.
With Joe Biden in the White House, the loan cancellation picture has become more clear. Federal student loans are unlikely to see forgiveness for all, but some borrowers are making plans in the hope of some limited relief. On the private loan side of the equation, there isn’t any discussion of loan cancellation.
However, there are other opportunities for forgiveness for private borrowers.
Converting Private Student Loans Into Federal Loans Eligible For Forgiveness
If federal loans have the best path to forgiveness, turning private loans into federal loans is an obvious fix.
Unfortuantely, options for this sort of conversion are limited. No mechanism exists to consolidate private debt into federal debt.
However, creative borrowers can essentially convert their private loans into federal loans using a couple of clever strategies:
- Borrowers still in school can use any income or savings to pay down their private debt. Most borrowers use their income from summer work to reduce what they borrow the following year. Instead, borrowers can use this income to pay down high-interest private loans. The next year, these borrowers target federal loans to pay for school. This process replaces private debt with federal debt. It can be especially effective for graduate students who have high federal borrowing limits.
- Borrowers in repayment can leverage federal repayment options to pay down private debt. If a borrower can get a lower payment on their federal loans, they can pay extra towards their federal loans. With a large variety of federal repayment plans available, many borrowers can find lower monthly payments. Making this switch means the private debt disappears quicker, and the federal debt lasts longer.
Borrowers interested in converting private debt into federal debt should check out this article.
Employer Loan Assistance Programs
Calling employer help a form of forgiveness or cancellation is a bit of a stretch.
However, it is a reasonable path to eliminate student debt without making payments. Some employers are far more generous than others, but many organizations are starting to offer this perk.
Borrowers should investigate this option with their current employer and ask about it when the are looking for a new job. The employer help can take a variety of formats, but it may provide a significant boost to borrowers.
Death and Disability Discharge
Some private student loans may include a provision that forgives the student debt if the borrower dies or becomes permanently disabled.
Obviously these strategies are not reasonable options for borrowers looking for loan forgiveness or cancellation. However, it is worth mentioning because borrowers should pay close attention to the death and disability provisions of their student loan. Many loan contracts do not include this important consumer protection. If something happens to the borrower, lenders may pursue money from the borrower’s cosigner or estate.
If your lender does not cancel debt for dead borrowers, there are ways to protect your cosigner. First, there are many options to get the cosigner release from the loan. Second, an insurance policy can help make sure a tragedy doesn’t become a financial catasrophe for the cosigner.
Giving Up on Private Student Loan Forgiveness or Cancellation
Sadly, the options for private loan help are quite limited. The vast majority of borrowers will be stuck repaying their loan balance in full.
At the point where cancellation is off the table, the next best option is to get a lower interest rate by refinancing your loans. Finding a better interest rate can significantly reduce the total cost of repayment. The downside to refinancing is that it is only available to borrowers who a decent credit history and employment. Those who truly need the help will have a hard time qualifying.
The best interest rates currently available are with the following lenders:
|Rank||Lender||Lowest Rate||Sherpa Review|
|1||1.64%||Laurel Road Review|
|T-2||1.88%||Splash Financial Review|