Private Student Loan Forgiveness: What Are Your Options?

Americans owe more than $1.8 trillion in student loan debt, with private student loans accounting for about 8% of that total. Unlike federal student loans, private loans generally don't qualify for forgiveness. There are a few avenues for loan cancellation, but you aren’t guaranteed to qualify. If you have private loans, it's worth understanding your private loan forgiveness options and what steps you can take if you've run into financial hardship.  

Current private student loan rates

Is private student loan forgiveness available?

Private student loans don't qualify for federal forgiveness programs, such as Public Service Loan Forgiveness or Teacher Loan Forgiveness. They also don't qualify for federal income-driven repayment forgiveness. 

However, there are a few student loan repayment assistance programs that can help you pay off private student loans. This private loan repayment help often comes from states or private organizations. It’s typically available to qualifying professionals who work in shortage or high-need areas. 

If you're pursuing a loan repayment assistance program or benefit from your employer, make sure to find out if you can put the assistance toward private student loans in addition to federal loans. 

When private student loans may be discharged

A few scenarios when private student loans may be discharged include: 

• Death or disability: If you die or become permanently disabled, a lender may discharge the private student loan. However, this depends on the lender and is approved on a case-by-case basis. Some lenders may instead transfer the debt to a spouse or cosigner. 
• Debt settlement: This form of private student loan relief involves an arrangement with a lender or debt collector to pay off the debt for less than what you owe. It typically happens after you've defaulted on your loan, and is not guaranteed. 
• School closure or misconduct: If your school closes while you're attending, or engages in deceptive tactics, you might qualify for a discharge of private student loans. Navient, for example, offers a private student loan forgiveness option for students who were defrauded by for-profit schools, such as ITT Tech. However, a lawsuit claims Navient has unfairly denied applications for forgiveness. 

There are no universal rules around private student loan forgiveness. Each lender sets its own policies. Check with your lender for any specific guidelines it might have around canceling private student loans. 

Can private student loans be forgiven in bankruptcy?

While discharging student loans in bankruptcy is difficult, it's not impossible. 

“Private student loans can sometimes be discharged in bankruptcy,” says student loan lawyer Adam Minsky. “Borrowers generally must be able to prove 'undue hardship,' which is a difficult standard to meet.”

Courts often use a legal standard known as the Brunner test to determine whether your loans constitute an undue hardship. You'll need to show that repaying your student loans would make it impossible to maintain a minimum standard of living, that your situation is unlikely to change, and that you've made a good-faith effort to pay back the loan. You'll also need to file a separate court action, called an adversary proceeding, within your bankruptcy case. 

“This path may be appropriate for some borrowers facing long-term financial hardship, but it’s complex and carries lasting credit implications,” says Ashly Eyler, director of student financial services at City University of Seattle. “Anyone considering bankruptcy should speak with a qualified attorney to fully understand the risks and potential outcomes before moving forward.”

Hardship options for private student loan borrowers

If you're struggling to repay your student loans, you may have options for relief. Some lenders will adjust your bills to help you avoid payments. Some protections could include: 

• Forbearance or deferment: A private lender might temporarily postpone your payments through forbearance or deferment if you've lost your job or are experiencing financial hardship. Interest charges will generally continue to accrue during this time and may capitalize, or be added to your principal balance, when payments resume. 
• Interest-only payments: A lender may let you pay off interest charges for a period of time while postponing full payments for a few months. With this approach, you won't have to worry about your balance ballooning due to interest accrual. 
• Loan modifications: It may be possible to adjust your repayment term, monthly payments, or interest rate to make repayment more affordable. A handful of private lenders also offer an income-based repayment option. 

While forbearance and interest-only payments may be available, “these options are usually limited and at the discretion of the lender,” says Minsky. 

Even if your lender doesn't publicly advertise a hardship relief program, it may be willing to work with you so your loan doesn't go into default. 

“The most important step is a simple one: Contact the lender and ask,” says Eyler. “Borrowers who are proactive often have more flexibility than those who wait until payments are already missed.”

Refinancing and settlement as alternatives to forgiveness

Private student loan forgiveness is rare, but refinancing and debt settlement are two alternative strategies you could consider to manage or reduce your debt. Refinancing involves replacing your current loans with a new private loan, ideally at a lower interest rate. 

The goal is to qualify for better terms so you can reduce your borrowing costs and adjust your monthly payments. To qualify for refinancing, you generally need to meet a lender’s requirements for credit score, income, and debt-to-income ratio. Lenders offer the best rates to borrowers with strong credit. 

If you've fallen behind on your private student loan payments, debt settlement may be an option. This approach involves negotiating with a lender or collection agency to pay a portion of your balance in exchange for having the rest discharged. However, success isn't guaranteed, and you risk racking up late fees and damaging your credit score along the way. 

What to do if you’re struggling with private student loans

It's important to be proactive if you're having trouble keeping up with your private student loan payments. Here are some steps that can help: 

• Contact your lender: Reach out before you start missing payments to avoid late fees and credit score damage. Ask your lender about hardship relief programs, such as forbearance or interest-only payments. 
• Document your hardship: Lenders will require documentation if you're requesting a loan modification or another hardship relief option. Consider ways you can prove your financial difficulties, such as pay stubs, bank statements, or medical bills.  
• Explore other relief options: These might include refinancing for better terms, debt settlement, or repayment assistance from your employer, state, or a private organization. 
• Seek credit counseling: A nonprofit credit counselor or student loan counselor could help you review your budget, explore your repayment options, and come up with a plan to move forward. You can find counselors and agencies through reputable organizations like the National Foundation for Credit Counseling and the Financial Counseling Association of America.

Finally, remember that you're not alone in struggling with student loan debt. 

“Many borrowers are navigating the same challenges,” says Eyler. “Asking for help is a sign of strength, and it’s often the turning point.”