Even though your private student loans do not offer the same forgiveness remedies as federal loans, does not mean you are completely without recourse. If you are finding it hard to pay your private student loans, then consider some of your other, often lesser-known possibilities of private student loan forgiveness.
Private Student Loan Forgiveness Options
Private Student Loan Forgiveness Due to Disability or Death
Some lenders will forgive private student loans due to death or disability. Some of these lenders include Sallie Mae, Laurel Road, and Wells Fargo. Check your contract and speak with your lender if you are in this situation. If you are able to get all or part of your private student loans forgiven due to death or disability, be aware that thanks to recent changes in the tax law, the amount discharged is no longer taxable.
Private Student Loan Forgiveness in Bankruptcy
You may have heard that student loans cannot be discharged in bankruptcy, and that’s just not so. Private student loan forgiveness is not automatic in bankruptcy, but it is possible. To get your student loans discharged in bankruptcy, you will have to prove paying your student loans would subject you to “undue hardship.” You must file an action against your student loan lender in an adversary proceeding as part of the bankruptcy process. The chances are less than half that you will succeed, but if your loans are substantial, the lawsuit may well be worth it. Your student loan attorney who is familiar with bankruptcy can best advise you.
Private Student Loan Forgiveness Through Your Job
There are federal programs that forgive all or part of your federal student loans in exchange for you working in a critical but hard-to-fill role for a couple or a few years. Unfortunately, federal programs such as the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program are not available for private student loans. The good news is that some employers offer their employees repayment of both federal and private student loans. Only about 3% of employers offer student loan forgiveness, but the trend is growing. If you are considering working for a company that offers this benefit, check to see if they cover private as well as federal student loans.
Talking with Your Lender To Negotiate Terms
This may seem obvious, but if you are falling into financial difficulty, talk to your lender even if your contract does not contain flexible repayment terms. They may not offer you forgiveness for your private student loans, but they may offer alternative repayment terms or other options you are able to meet. Before asking for a specific kind of relief, ask them to lay out all the possible solutions. Of course, you may need to submit documentation of your financial circumstances.
Private Student Loan Forgiveness Due to Missing Paperwork
In a number of recent cases, National Collegiate Student Loan Trusts has taken borrowers to court when they defaulted on their student loans. But once they got there, many of the cases were simply thrown out of court, because the company could not prove that the person owed the money. Tens of thousands of people may be eligible to have at least $5 billion in private student loans forgiven due to the ineptness of loan holders. National Collegiate is an umbrella company for 15 trusts that hold 800,000 private student loans, totaling $12 billion. $5 billion of that debt is in default. National Collegiate has repeatedly been unable to show it owns loans that were originally made by banks and then sold to investors.
Example of Loan Forgiveness Due to Missing Paperwork
National Collegiate sued Samantha Watson for default. When they got to court, the company’s paperwork was disorganized and incorrect, even stating she had attended a college where she had never been enrolled. The judge dismissed four lawsuits against Miss Watson, which discharged $31,000 of her debt. The trusts “failed to establish the chain of title” on Ms. Watson’s loans, he wrote in one ruling. Judges across the nation have recently thrown out lawsuits National Collegiate has brought against creditors including cases in New Hampshire, Ohio and Texas. These cases were not dismissed for fraud, but rather because National Collegiate was unable to prove it owned the student loans.
Request a Verification of The Debt
The Fair Debt Collection Practices Act affords the right for the consumer to be provided proof that they actually owe the debt. You can send a letter to the debt holder requesting a validation of the debt. The debt collector must then provide you with the amount of the debt, the name of the creditor to whom its owed and other details. If the debt is legitimately yours, it will be hard to make make the debt go away. If the debt is not yours, you would need to immediately dispute the validity of the debt.
Fraud and Predatory Practices Could Mean Forgiveness
Many private student loan lenders have abused their borrowers with predatory or sloppy practices that have put their borrowers in difficult positions. From September 1, 2016 through August 31, 2017, the Consumer Financial Protection Bureau handled approximately 7,700 private student loan complaints. Since 2012, the Bureau has repeatedly documented how private student loan borrowers complain that their repayment efforts are frustrated by servicing errors. Lenders and schools have also enticed students to take out large, high-interest loans knowing they were unlikely to be able to repay them. Other complaints include difficulties accessing advertised loan benefits and repayment options and servicing errors that resulted in benefits being removed from loans.
The federal government has offered some relief to federal student loan borrowers in these situations, though state attorney generals have had to sue the Trump administration for follow-through, and new regulations will make it for difficult for even federal student loan holders to find relief. It is much more difficult for private student loan holders. It won’t be easy, but you can pursue legal remedies if you are left holding the bag. Let’s look at a few recent examples.
Navient Is Accused of Colluding with Schools to Make Bad Loans
One of the sins of Navient was predatory lending practices where it offered billions of dollars in private loans to students who were never expected to be able to repay them. Navient is a student loan behemoth that split off from Sallie Mae in 2014 and kept most of Sallie Mae’s existing student loans. Sallie Mae made most of its money by originating federally guaranteed student loans, but it also offered private loans. Navient does not make the loans, but it holds large contracts to collect monthly payments on behalf banks, the government and other lenders. By far, more complaints regarding student loans were lodged against Navient in the Consumer Financial Protection Bureau’s Annual Report of the CFPB Student Loan Ombudsman (October 2017) than against any other private student loan lender. Its mistakes cost millions of people inflated costs and made it a target of lawsuits filed by state attorneys general and the Consumer Financial Protection Bureau.
“These loans were designed to fail,” said Shannon Smith, chief of the consumer protection division at the Washington State attorney general’s office as reported by the New York Times. But what is particularly alarming is that Navient was in collusion with colleges and universities to lure students who could ill afford these private loans. Here’s why. Only 90% or less of a school’s tuition payments can come from federal funding under Education Department rules. In other words, 10% must come from private sources. For-profit schools are greatly dependent on money that comes from federal student loans, so it is critical for them that a certain percentage of students take out private student loans even if they are likely to default. This is why some schools made deals with private lenders to subsidize the lenders’ losses.
In addition to purposeful predatory practices, the lawsuits describe routine and systematic oversights and failures that cost borrowers billions. These are being commonly compared to the mortgage servicing industry’s bungles of accounts and foreclosures leading up to the recession in 2008. Financial companies paid over $100 billion to settle in those instances. The attorneys general in Illinois and Washington who sued Navient— backed by attorney generals in 27 other states, who participated in the Consumer Financial Protection Bureau’s three-year investigation of student lending abuses — want those private loans forgiven.
Corinthian Is Accused of Defrauding Its Students
Another recent scandal was Corinthian Colleges filing for bankruptcy in 2015 in the face of scheming with lender Aequitas to lure unqualified borrowers to borrow high interest private student loans, because of the rule mentioned above that colleges must get at least 10% of their tuition from sources other than federal loans. Corinthian called these “Genesis” loans. “Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare,” said Consumer Financial Protection Bureau Director Richard Cordray in a statement. The loan program had default rates of between 50% and 70% according to the CFPB.
Under the Obama administration, the Education Department agreed to expedite federal loan discharges for students who attended Corinthian’s Everest and WyoTech schools after an investigation found widespread misrepresentation of job placement rates for graduates. When Betsy DeVos and the Trump administration dragged their feet on honoring that promise, the attorneys general of California, Massachusetts New York and Illinois sued. California claimed that students are eligible for relief after courts ruled that Corinthian defrauded them in violation of California’s consumer protection laws. The US Department of Education has since approved thousands of applications for discharge of fraudulent federal student loans and denied thousands of others. Going forward, the Education Department will provide relief to Corinthian borrowers by comparing the average earnings of students in similar vocational programs. Applicants will receive full loan forgiveness if their earnings are less than 50 percent of their peers’. If their pay is at or above that threshold, the department will provide relief on a sliding scale. If a student was enrolled in multiple programs, the program that yields the most relief will be used in the calculation. This new calculation has many critics. For one thing, it does not take into account the many applicants who never finished school.
False Representation of Courses
Some schools are getting into hot water by misrepresenting their courses. For example, Medical Careers Institute offered sonography but no clinical training. But it did not inform students that they could not take the licensing exam necessary to practice without that clinical training. Of course, that meant after graduation, it was impossible to find a job in the field. After the school closed in 2008, some students sued, accusing the school of making false claims. The case settled, and some students received compensation, but not the entire amount they had borrowed. Some students who had borrowed from Sallie Mae then sued Sallie Mae on the grounds that it was unfair to expect repayment on a loan made for fraudulent goods. The students lost in an arbitration hearing.
Inflated Job Placement Rates
Corinthian was not alone in falsifying job placement rates of its graduates. California students sued Sallie Mae for discharge of loans to attend California Culinary Academy. It’s an affiliate of Le Cordon Bleu and also owned by Career Education. The case was dismissed, and an appellate court upheld the decision. The decision revolved around whether or not Sallie Mae knew about the fraud.
Recourse for Fraud and Negligence for Private Student Loan Holders
The area of private student loan fraud has been a quickly changing landscape. It bears repeating that you do not have the same protections offered by federal student loans. If you are defrauded, you cannot just apply to the government for a discharge for private student loans as you can for federal student loans.
But should states attorneys general push forward with lawsuits or file new ones, it’s possible you may benefit from any settlement or award if you were enticed by a school and lender to take out a loan you could ill afford with fraudulent promises such as Corinthian’s Genesis Loan Program. You may be able to file your own lawsuit or join a mass action. However, many private student loan contracts contain arbitration clauses which make pursuing justice even more difficult. However, state attorneys general are not bound by these arbitration clauses. In some cases, attorney general lawsuits may be your only real chance of compensation.
If you think you have been defrauded with your private student loan and want private student loan forgiveness, the best thing you can do is talk to a good student loan attorney. They can analyze the situation regarding your school, your lender, your loan, your state and the shifting law, and advise you of your options.
Know Your Loans
Private student loans offer few protections, and unless you are wary, it’s possible to find yourself owing thousands of dollars with little to show for it. Be sure to read your contract carefully, and if you have any doubts, contact a professional financial advisor or student loan attorney before proceeding with the loan. Almost half of private student loan borrowers do not exhaust their federal loan options before taking out private loans.