Private Student Loan Alternatives to Avoid Financial Nightmares
Undoubtedly, knowing how to get rid of private student loans can significantly benefit your life in various ways.
From being able to experience financial freedom to making the most of your post-graduate job, the benefits are endless.
With that said, getting rid of your student loans from private lenders is significantly more challenging than with federal loans.
The Myth of Private Student Loan Forgiveness
One of the most commonly searched things is whether it’s possible to forgive private student loans.
You may have even heard of students getting loan forgiveness, but they often forget to mention they have federal loans.
Student loan forgiveness is a myth with private lenders, and finding help paying your loans back is challenging.
Your best option is to find ways to help you effectively manage your finances so that you can pay the loan back.
Although it can take a lengthy period, you can rest in the fact that you will have the comfort of financial freedom.
Also, you won’t have to worry about any blemishes on your financial history, such as defaulted payments.
Can’t I Just Declare Bankruptcy to Get Rid of Student Loans?
Bankruptcy is a process that allows individuals to relieve themselves of financial hardships.
There have been many instances where students have considered declaring bankruptcy to eliminate their student loans.
Though it has been successful in the past, the process is incredibly challenging and can often be expensive.
Not only will you be required to pay for filing an ample amount of paperwork, but you’ll have to get a lawyer as well.
Students will also need to prove that they have encountered an “undue hardship” preventing them from repaying.
Most legal jurisdictions have a specific set of terms and tests that individuals must go through to prove undue hardship.
This process begins with an adversary proceeding, which is a lawsuit you’ll need to file against your lender.
Adversary proceedings are incredibly time-consuming and often invasive, especially for the borrower.
Every inch of your financial life will be analyzed to determine whether the lawsuit is valid.
Also, as mentioned, you will be required to retain a bankruptcy attorney to help you through the process.
Another considerable challenge you could face is the fact that your lender has more resources than you.
For example, they will already have lawyers on retainer to fight against the lawsuit.
For how difficult and expensive the process can be, it’s often a better option to pay back your loan in its entirety.
Let’s look at a few alternatives to taking the legal route to get rid of private student loans.
How to Get Rid of Private Student Loans
There’s no doubt that your best bet is working with your lender to pay off your student loan.
Every bank knows the challenges of student loans, and your account is one of the thousands they’ve worked on.
There are a few steps you’ll want to follow to begin the process.
Step 1: Review Your Loan Terms
The very first thing to consider doing before repaying your student loan is to understand the terms.
Depending on the number of loans you have, this process can be time-consuming.
You’ll want a list of every loan with every lender, the repayment status of each, and the remaining balance.
If you don’t know the loans you have off the top of your head, you can easily see them on a credit report.
There are dozens of agencies that offer credit reports that you can review for free.
Within this report, you’ll have the names, contact information, and other data about the loans under your name.
With the relevant information about your loans in your possession, you can move on to the next step.
It will require you to have a positive relationship with your bank and a good financial history.
Step 2: Negotiating with the Bank
The concept of negotiating with a bank or student loan lender can be nerve-wracking.
However, it’s important to remember that you’re not the first and certainly not the last student to do so.
If you’re in a position where you can’t afford your loan repayments, negotiation is essential.
For a bank, the most crucial part of a loan is to make sure it’s repaid.
Showing you’re willing to negotiate ensures they receive their money while you get more agreeable terms.
You won’t likely see significant changes to your initial agreement, but you can get some relief.
The majority of banks know that if their customers default on their loans, they have other options.
For example, lenders are known to file wage garnishments for defaulted loans.
In this instance, money will be automatically deducted from your pay to go towards your loan.
With that said, the process can be expensive and time-consuming, so your bank will likely work with you first.
The most common change students see with bank negotiation is longer terms, which translates to lower monthly payments.
This position is a win-win situation because you pay less per month, but the bank receives interest for a longer term.
Step 3: Consider Loan Refinancing
Loan refinancing isn’t a way to get rid of student loans in their entirety, but it can be helpful.
If you’re stuck with a lender that has higher interest rates and few perks, there are better options out there.
All you have to do is consider refinancing your loan, bringing it from one lender to another.
Banks make this process particularly simple, even if you’ve never refinanced before.
Essentially, you find a new lender, sign an agreement with them, and the new bank pays off your old loan.
After paying your old loan off, the new bank takes on the debt, and you’re responsible for paying them back.
Loan refinancing can unlock an assortment of benefits, one of the most prevalent being lower interest rates.
With lower interest, more of your money goes towards the principal balance of your loan.
This process can help you pay off your loans significantly faster and within a shorter period.
Aside from interest, switching lenders can give you several other benefits.
You might be able to get rewards and incentives for switching banks, have the ability to remove a cosigner, and more.
It is often one of the more preferred options for eliminating student debt.
Other Alternatives
If you’ve tried to negotiate with your bank to no avail and refinancing isn’t an option, there are other alternatives.
Let’s take a look at a couple of the most recommended things to do to get rid of student debt.
1. Earn Extra Income
Making more money seems like the most obvious option when it comes to paying down debt faster.
It’s also a fantastic way to give you more financial freedom so that you can start saving for your future.
There are dozens of ways to make more money, whether through a promotion or by switching jobs.
Another option is to pick up a second, part-time job that you can do on the side.
If you’re struggling financially, allocating more of your time to acquiring increased income is essential.
With today’s gig economy, making a few extra hundred dollars a week isn’t as challenging as you’d think.
Consider working extra shifts, starting a side business, or even signing up for delivery services.
With regular wages paired with customer tips, you might be able to build a sizable nest egg.
In some instances, you can even earn enough so that your part-time job pays your loan while your full-time job pays living expenses.
2. Permanent Disability Discharge
One area where private and federal student loans are similar is through disability discharges.
The majority of private lenders offer this as a benefit to customers, ensuring you have extra protections.
If you incur a disability that prevents you from working, you could discharge your student loans.
However, it’s important to read the fine print of your loan agreement to ensure this is available.
Also, you should know that getting a permanent disability discharge isn’t as easy as you’d think.
You’ll not only need to prove that you’re unable to work but also that your physical or mental impairment stops you.
Borrowers will also likely need private financial information for three or more years after being discharged.
This information helps the bank know that you’re not earning income above your state’s poverty guidelines.
If your annual income is above this amount, your loans will be reinstated and will need to be paid back.
The requirements for permanent disability discharge will differ depending on the lender.
Some lenders require you to undergo benefits reviews, while others will require a physician’s note.
Be sure to confirm the details with your bank before applying.
3. Debt Settling
Successfully settling your debt with a bank is even more challenging than negotiating for a longer repayment term.
You’ll be approaching the lender to reduce the total amount of debt you owe during this process.
The lender will need to absolve some of your loans in these instances, so you owe less.
It’s unlikely that this is an option for you unless your loans are in or near default.
You might also have a better chance if the bank would make more from settling than legally pursuing the debt.
Typically, there’s a timeline you’ll have to consider if you want to force your loan into default.
With private lenders, default occurs after 90 days without payments.
After this period, you can then consider negotiating with your bank to settle for a lesser amount.
Even though this seems straightforward enough, there are significant disadvantages to consider.
For instance, forcing your student loans into default can cause your credit to plummet.
Also, collections costs will be added to your total amount owed, negating any reductions during settling.
For all borrowers, it’s significantly better to just repay your student loans or consider negotiating a longer-term.
Final Thoughts
Learning how to get rid of private student loans has more to do with budgeting than anything else.
If you can work with your lender, you could get a longer repayment term or settle for a lesser amount.
However, the simplest option is to pay the loan back slowly over time.
