In August 2022, President Joe Biden announced his plan to cancel up to $20,000 of federal student loan debt for borrowers making less than $125,000.
But it’s crucial to note that this is not private student loan forgiveness — the cancellation applies to federal student loan borrowers only. If you have private student loans, you’ll need to find other options for relief.
There is no private student loan forgiveness.
Private lenders like banks and credit unions aren’t required to forgive any loans, even if you’re struggling to make payments. They might offer borrowers temporary relief, such as a payment pause or a reduction in payment amounts. But this relief isn’t guaranteed, and it doesn’t last forever.
You’ll have to contact your lender to see if they offer temporary relief and, if so, how to set it up. Keep in mind that you’ll probably still accrue interest during this time, making your overall debt more expensive while you ride out a temporary forbearance.
Many borrowers are afraid that they’ll be saddled with student debt for life, even if they have to declare bankruptcy. The Consumer Financial Protection Bureau firmly states this is a myth. It is rare, but possible, to get student loans discharged if you file for bankruptcy.
The catch, though, is that you’ll have to take additional steps, including what’s called an adversary proceeding, to ask for your student loans to be discharged. Getting public student loan debt canceled, even in bankruptcy, is not easy, automatic, or guaranteed.
In fact, even though it can be challenging, declaring bankruptcy may be preferable to straight-up defaulting on your student loans. If you default, meaning you stop making payments to your student loan creditors, you risk a host of adverse consequences, including:
In other words, your lenders will come after you, sometimes quite fiercely, to recoup their money.
What’s worse is that you’ll have a tough time dodging the fallout, which can follow you for years and make it difficult for you to get a car, a house, or even a job. That’s because everyone from landlords to hiring managers run credit checks before agreeing to deals. If your credit report is tanked from a student loan default, it’ll make your life far more difficult.
| Be forewarned: Bankruptcy isn’t an easy out, either. It’ll have a negative impact on your credit for years to come, too — as long as a decade, in some cases. If you can, it’s best to find another solution. |
While it’s not technically impossible for President Biden to forgive private student loans, it’s highly unlikely.
As it stands, Biden’s student loan forgiveness program only forgives $10,000 of federal student loan debt — and only for people making less than $125,000 per year (or $250,000 per married couple).
Consider, too, that every student loan forgiveness program currently on the books, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness, has strict eligibility requirements and only forgives federal student loan debt. None of them forgives private loan debt.
Even Pell Grant recipients, who are low-income student loan borrowers, are only eligible for $20,000 in federal loan forgiveness under Biden’s plan. Pell grants once covered 80% of college costs, but now only help with about a third of the cost to attend college, according to the Center on Budget and Policy Priorities.
Considering that Biden’s student loan cancellation plan has already faced legal challenges, it’s extremely unlikely that a plan introducing forgiveness for private student loans would succeed. Such a plan would require not only political bipartisanship, but also cooperation with major banks and lenders. It’s not impossible, but your time would be far better spent finding a more proactive solution.
Since private student loan forgiveness is not an option, you’ll need alternative ways to tackle your private student loan debt. The three most common options are:
Whatever you do, don’t don’t stop paying on your loan, even as you’re exploring your options. Missing just three monthly payments can be enough to put your loan in default. Once that happens, you’ll start hearing from collection agencies, and your lender may even take you to court. Your wages could be garnished, which takes money from your paycheck to repay the debt. And your credit report will definitely take a hit as the delinquency gets reported. That will lower your credit score and will make it tougher for you to borrow for a house, buy a car, or even get a new credit card.
Refinancing is a great option if you’ve improved your credit since first taking out the loan. You’ll qualify for the best rates, as lenders see you as less of a risk than when you were first starting out.
With a lower rate and/or longer loan term, you can lower your monthly payment, sometimes by hundreds of dollars, making it more affordable for your budget. A lower rate can also save you money on interest costs over the life of the loan, lowering your total spending on your education.
Refinancing your student loans follows a straightforward process:
Even though private student loan forgiveness is off the table for borrowers, options for relief are still available. Taking steps to reduce your loan burden will open other doors for you financially, so it’s worth exploring your alternatives.
Related: Learn more about getting a private student loan on Credible.com