Current data suggests that there is $99.7 Billion in outstanding private student loans. With 90% of private student loans having a co-signer, these student loans can pose a serious and stressful problem for entire families! With 7.2% of private student loans under stress (delinquency, default, or forbearance), that’s $7 Billion in problematic private student loan debt.
Why is private student loan debt such a problem?
- Because it is MUCH harder to reduce the burdens of private student loans.
- Many of these loans were taken out by students based on false promises made by unethical for-profit college companies. Historically, the percent of students taking private student loans at for-profit colleges has been more than double that of students attending non-profit of state colleges.
What can I do to Reduce My Private Student Loan Burden?
Based your specific situation, you may be able to:
- Attempt to reduce your payment through re-financing or consolidating your private student loans at a lower interest rate or longer pay off term
- Attempt to reduce or dismiss your principal balance through a more traditional debt settlement program where you or a debt settlement firm attempts to negotiate with your lender
- As a temporary fix to your private student loans, attempt to pause your loans by asking your lender for a forbearance or deferment
Unfortunately, unlike Federal student loan income driven and forgiveness programs which are guaranteed for those who qualify.
How do I Re-Finance or Consolidate My Private Student Loans?
This is a great option for credit worth borrowers. Re-financing/consolidation is done through private lenders (see our page here for names of some private student loan lenders).
A lender will generally look for 3 things when considering whether you can re-finance:
- Credit Score: Generally you need a score higher than 660
- Debt to Income Ratio: Generally your debt to income can’t exceed 40-45%
- Steady income
How can I Negotiate with my Lender?
You can either attempt to do this yourself, or you can hire a debt settlement firm that specializes in settling debts. Most people find it very intimidating to negotiate with a lender and thus hire a private firm if this is the route they choose. Firms that specialize in this also have many tricks in how they deal with lenders that makes them more likely to negotiate.
How Does Debt Settlement Work?
In order to get a lender to actually negotiate reduced payments and/or a reduced principal balance, typically the borrower has convinced the lender of two things:
- That the borrower cannot afford to fully pay the private student loan (and thus won’t)
- That they will get something if they negotiate with the borrower (often this is a lump sum payment of some amount) and be better off than they were prior to negotiating
There are many different approaches to settle student loans and results are IN NO WAY guaranteed. Debt settlement companies help borrowers understand what lenders typically require to settle and often use the leverage of having many clients who want to settle and then settle in bulk to get the best deal for their clients. Generally, there are two ways that settlement companies settle private student loans
- Allow time for the client to build up a lump sum, then approach the creditor and attempt to settle
- Find a lender that is willing to re-finance a lower amount of debt and approach the lender to settle for that amount
In both cases the lender sees that the borrower can pay a large chunk of the debt up front and thus is more willing to take an offer of settlement.
How Much Can I Save?
This varies tremendously, some borrowers are unable to settle, but many settle for significantly less than the original loan.
What are the Issues and Risks:
- Debt settlement will result in a lower credit score
- While attempting to settle collectors will call (sometimes VERY often)
- Depending on the borrowers circumstances, they may owe taxes on the canceled debt (make sure to discuss the tax implications with a professional before choosing debt settlement)
How much does it cost?
Debt settlement companies typically charge a percent of the value of the debt being settled.
What to watch out for In a Private Student Loan Settlement Company:
- Beware of anyone who guarantees an outcome–This is NOT legal
- Beware of anyone who does not warn you that settling debts can harm your credit
- Beware of anyone that doesn’t warn you that attempting to settle your private student loans may cause you to receive collections calls
An Alternative Approach to Debt Settlement: Dismissal
Debt dismissal is very new approach, there are a very few law firms attempting to get private student loan debt fully dismissed by claiming the loan was taken out based on fraudulent claims made by unethical for-profit colleges working in collusion with lenders. The efficacy of this method of student loan forgiveness is still unclear, but we will continue to monitor it and update as more cases are tried.
What About Pausing my Private Student Loans (a Temporary Fix)?
The ability to pause your loans via a forbearance or deferment depends entirely on your specific loan docs and lender. Currently, 2.2% of private student loans are in forbearance. It is definitely worth a call to your lender to see if they will allow this if you are struggling through a temporary hardship. But a word of caution–make sure you understand what your lender is offering as interest is likely to continue piling if you are not making your payments.
What Else Can I Do?
Because many borrowers who struggle with private student loans also have federal student loans, often the best first step of any strategy to improving your student loan situation is to consolidate your federal student loans to take advantage of the Income-Driven Repayment Plans available. You can do this through the Department of Education or your loan servicer yourself, or you can pay a private document preparation company to help you better understand your options and help you enroll in the program that is most beneficial to you. We specialize in helping borrowers take advantage of income-driven programs and would love to help you assess and improve your situation.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
SoFi: Fixed rates from 3.890% APR to 8.074% APR (with AutoPay). Variable rates from 2.550% APR to 7.115% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.550% APR assumes current 1 month LIBOR rate of 2.50% plus 0.04% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.