If you are struggling with private student loan debt, you are certainly not alone! About 15% of the more than $1 trillion in American student loan debt is held privately-mostly loans that students took to supplement the federal loans they were already getting. If you're like most people in this situation, you probably have both federal and private loan debt.
Unlike the government loans, however, private loans don't usually come with helpful options like income-based repayment plans, forbearance and deferment options, and loan forgiveness programs. With private loans, you owe what you owe, and if you can't make your agreed-upon payments, you may well find yourself in a situation that causes significant harm to your credit-and maybe even that of your family (if family members co-signed your loans, which happens in 90% of private student loan debt). And in most cases, student debt cannot be discharged through bankruptcy.
It's possible that your loan may have been taken at a time when interest rates were higher than they are now. If that's the case, then there's a value to refinancing your loan. Essentially, you would be taking a new loan in place of the old loan, but this time at a better interest rate.
The good thing about refinancing is that it can significantly lower your interest and, in the process, your monthly payment. The bad thing is that you will need to qualify for the new loan. In most cases, that means a credit score of at least 660 and a debt-to-income ratio that's no higher than 40-50%; of course, you'll also have to show that you have a steady source of income to be able to repay the new loan.
Here's where it becomes extremely important that you address your private debt problem before it gets out of control. If you've been making your loan payments and are starting to struggle, refinancing may be a realistic option. However, if you've let the debt get out of control and have missed multiple payments that have been reported to the credit bureaus, you're lowing your credit score-and, therefore, pushing loan refinancing beyond your reach. If refinancing looks like a good option for you, take action early, before you start missing payments and lowering your credit score.
It's not uncommon for students to have multiple loans-some of them private and some from the federal government. Just as in the federal loan system, one option for addressing the situation when you're struggling to make your payments is to consolidate your loans. When you consolidate, you roll several individual loans into one new one, which could save you money in the long run.
However, BE CAREFUL! If you consolidate federal loans with private loans, you will be doing so through a private lender. (This is something the federal government does not do.) But by consolidating federal and private loans in a new, refinanced private loan, you will give up all of the repayment options that are available in the federal system (like renegotiated repayment plans, forbearance, deferment, and forgiveness programs); essentially, you will be subjecting the federal portion of your debt to the same limitations as your private loans-because now all of your loan will be serviced by a private lender. There may still be good reasons to consolidate your federal and private loans, and you should consider this option carefully. Just be sure that you approach this option with care, knowing that leaving behind the options of the federal system could actually make your situation worse.
Just as with any other kind of debt, it is sometimes possible to negotiate with a lender to accept a lower amount of money than you actually owe. Of course, there is no guarantee that your lender will consider this option, but it may be worth pursuing.
If your lender is willing to accept a lower amount in settlement of your debt, you should be aware of several things:
Of all the options, this is certainly the biggest longshot, but in certain circumstances it may be worth pursuing. Essentially loan dismissal is when you make a claim that you should not have to pay off the remainder of your loan, and the loan is written off. It doesn't happen often, and when it does it usually involves hiring a lawyer-but sometimes it is a possibility.
Some people have taken private student loans to finance an education at a for-profit university that may have been involved in fraudulent activity. And beyond this, some of those for-profit universities were engaged in fraudulent activity with lenders. If you have fallen victim to such a scheme, then the law is on your side, and it may be possible get your loan dismissed. Doing so, though, will mean contacting a law firm that handles such matters and having them represent you in a legal case. If you are successful, your debt may very well be dismissed.