Private student loan forgiveness is one of the most common topics that I am asked about as a NACCC Certified Student Loan Counselor. Whether or not forgiveness actually exists, depends on how you interpret the term “forgiveness”.
In this article I break down your actual possibilities for forgiveness, as well as fact checking some of the marketing and promotional articles you, as a borrower, may come across while searching for help about forgiveness and more generally about student loans.
In short, true student loan forgiveness programs for private borrowers aren’t available as an option the same way that they are for federal loans. Having said that, there are some viable alternatives.
Many loans can be settled for far less than the full balance, if they are from a for-profit lender, and if the loan is in default.
This is often the only real form of actual forgiveness available to borrowers; however, determining whether a specific loan can be settled, and for how much, is both an art and science – and that’s before the actual negotiation process comes into play.
But don’t expect lenders, collectors, or self professed internet experts for all manner of loans to tell you how to obtain this form of relief – it may either be against their financial interests to recommend it to you, or they may simply not know much about it.
Factors Influencing Private Loan Forgiveness via Settlement
- The amount of time passed since the default
- The agency or company’s ability/desire to take legal action
- Specific settlement policies
- The company’s corporate structure
- Company practices/settlement policies
- The skill/experience of the negotiator
- The skill of the collector (more of a determining factor for those negotiating on their own)
- Any established negotiating relationships within the collection department/third party collection agency (more of a determining factor for established negotiators who are working with the same agencies/collectors month after month, for years)
- The economic environment
- The previous payment history of the borrower prior to default
- Potential assets or lines of credit the lender or collector is able to see from a credit pull of the borrower or cosigner
- Whether a borrower has made a significant amount of payments on the loan in the past
- The “collectability” of the borrower and/or cosigner (visible lines of credit on credit reports, disclosure of assets to the lender or collector)
Is Settlement The Closest Thing to Forgiveness For The Vast Majority Of Private Loan Borrowers?
Forgiveness programs aren’t a viable option; which means that settlement is the only way to get a large portion of your student loan debt forgiven outside of the rare bankruptcy discharge case.
And finding a bankruptcy attorney who knows how to successfully execute an Adversary Proceeding (and whether or not it is even worth it to try) is difficult in itself.
For most others, student loan settlement will be their most available option. As I often tell callers, it is the fastest and least expensive way to get out from under the burden of a (non-federal) student loan – but it does not come without risks and downsides.
While the worst of the risks (such as litigation) can be mitigated by a skilled strategist and negotiator, there is usually some credit damage involved in the lead up to negotiations, as accounts go late and into default. This begins to improve after settlement.
Regardless of whether a settlement is lump sum or structured, you’re going to need some funds! It is usually not possible to structure a student loan settlement as a fixed low payment over an extended period at a reduced percentage of the balance, which is the most common misconception I come across when discussing this option with clients. You will need a down payment on most structured settlements.
If you’re a borrower who’s taken out a private loan and you’re looking to pursue the forgiveness route, it’s really only accessible through the negotiation of a lump sum or structured settlement, where the creditor agrees to cancel, or forgive, the remaining balance without attempting to collect on it in the future.
Each company has different policies about settlement, as well as varying levels of aggression in pursuing those who have borrowed, once default has taken place.
A significant student settlement is usually not possible prior to default for loans that are private, although some lenders such as Navient will agree to take 70-80% (which I consider a terrible settlement) when the loans are delinquent but not yet in default. If the loans are current, forget about it! The lender has no incentive.
However, by waiting for default to occur, much better settlements can be achieved through expert negotiation. Some patience is therefore required.
Pursuing a forgiveness program might be a door that’s closed off to you, but as you can see, there are certainly other ways to help deal with non-federal student loans.
Do Any Other Student Loan Companies Offer Forgiveness Programs?
Lenders in general do not offer student loan forgiveness programs like the Department of Education; except in some rare cases where they agree to a disability discharge if federal loans are also discharged; a discharge because of the death of a borrower, etc.
But these circumstances are not common. Settlement happens every day, however. Here is more information about how different student loan corporations handle settlement.
One of the largest private loan originators I come across. I regularly negotiate with them almost every month.
I have settled millions in Navient student loans and have a vast knowledge base of how they handle accounts in default at various stages of their collection cycle.
As with many other lenders and collection agencies, I have established strong negotiating relationships with various reps, managers, supervisors, and directors in both Navient’s internal collection departments, as well as with the various third party collection agencies they employ.
Navient private loans can often be settled for very good percentages on both lump sum and structured settlements, but be warned – their collectors have developed a notorious reputation for good reason, and they’re very driven.
For those who want to pursue student settlement for Sallie Mae loans, they need to be aware that SLM handles their loans very differently from Navient, even though Navient split off from them in 2014.
Sallie Mae is now an FDIC insured bank, and they are the only private lender who is currently selling their defaulted private student loans to debt buyers after default.
They will settle, but the debt buyers will put up a fight to get a return on their investment (their purchase of the SLM private loans that are in default). You can read more about Sallie Mae loan forgiveness here.
National Collegiate Trust
Other student loan lenders like the National Collegiate Trust have developed an aggressive reputation, even though the “NCT” loses many cases when they are challenged by competent attorneys.
Their accounts can be settled, but only at very specific points in their confusing collection cycle (at least for a good settlement percentage).
Discover student loans are often handled by some very polite yet very difficult collection negotiators in their internal collection department in Salt Lake City, UT; while Keybank and Wells Fargo are also commonly handled by internal collection departments in addition to third party agencies.
Discover has recently enacted a hardball policy of not settling below 70-80% for loans within statute.
Chase is rumored to have halted all collection lawsuits for its student loan portfolio, while they are no longer originating new student loans, they have sold some of their portfolios to the National Collegiate Trust; as well as to Navient.
Private Chase loans are not commonly seen in the industry anymore, as they have exited the student loan industry completely as far as originations and servicing goes.
Citibank employs tough third party debt collectors, but will settle their student loans in a similar range as their credit card debt with skilled negotiations. They have also mostly exited the student loan industry and are no longer originating new loans, but their old student loans are still floating around and we see them from time to time.
Can’t you seek settlement programs on your own?
Of course! However, just because some student loan lenders offer settlement does not mean that it will be easy to obtain. Lenders would much rather get a borrower onto a payment plan for the balance plus interest, or talk them into taking a much higher settlement than what is possible with expert negotiations.
Lenders employ skilled internal and third party debt collectors who hone their skills day in and day out to pressure, confuse, obfuscate, threaten, and yes – befriend you, all to get the borrower to agree to terms that are beneficial to the servicer and that will result in the biggest performance bonus or commission for the debt collector.
Even if a borrower is lucky enough to get a good settlement on their own, executing a settlement properly – making sure that it is notated correctly in the lender’s systems, reported correctly to the credit bureaus, and ensuring that the lender does not try to collect on the forgiven balance – is just as important as negotiating the dollar amount.
This is an area that the vast majority of people don’t have experience in, and the internet is filled with horror stories of student settlements gone wrong.
One of the biggest mistakes that people make is assuming that the collector they are talking to is an objective source of financial information and options.
For years, federal collectors wouldn’t even mention one of the two major options for federal borrowers to get out of default (Direct Consolidation). The same type of selective information is given to private borrowers as well – this gives the debt collectors an upper hand.
It’s hard to make an informed decision when you don’t have all of the objective information needed to make the best choice for your situation – and it is rare that you will have all of the information needed to make the best decision when it is your first time negotiating with a student loan lender or collector.
As someone approaching this situation for the first time, who is only referencing the limited, conflicted, and often contradictory information available on most websites or self help finance forums; it’s extremely difficult to know if what the collector is telling you is true or false, bluff or reality.
This is why it makes sense to hire an experienced negotiator who is a specialist in this area, working on behalf of those who have many settlements with the student loan lender that you want to negotiate with.
Even including the performance based negotiation charge, a skilled negotiator can achieve net savings greater than what would be possible for most borrowers on their own.
Hiring a professional also saves time, eliminates the stress of negotiating on your own accounts (which is very real, even for professional negotiators trying to work on their own personal accounts), and most importantly – a professional will ensure that your settlement is executed correctly and will be able to resolve any potential issues that arise post settlement.
It goes without saying that it’s highly recommended to hire a negotiator to help reduce your debt.
What Students Need To Know About Private Loan Forgiveness
Other than the long, arduous, and expensive process of pursuing an Adversary Proceeding and discharge in bankruptcy (which does happen, although not often); it can feel like there are no options when it comes to actual forgiveness and that you’re destined to be trapped in an inflexible payment plan with a balance that does not significantly go down – and in many cases goes up over time. I’ve written about Sallie Mae loan forgiveness here.
So, is student forgiveness a real possibility? Yes – at least partially. It will not be an easy process, and it’s not for everyone. Some corporations, usually nonprofit or “institutional” loan lenders, may not settle at all.
But most for-profit student loan lenders have the incentive to agree to cancelling a portion of the student loan in return for a reduced payoff.
How and when they do that, and how difficult a process it is, all depends a great deal on individual lender’s practices and policies – and to make matters even more difficult, these policies can change and adapt from month to month, and year to year.
Working with a student loan negotiator who settles every month means that you’re working with someone who is able to identify and adapt to these trends over time.
A private loan can be discharged in a bankruptcy through an adversary proceeding, although meeting the difficult standards for discharge under the 2005 BAPCPA is very difficult.
For the most part, this is not an option available to most private borrowers due to the stringent standards for an “Adversary Proceeding” to be successful within a bankruptcy.
Be wary of false student loan prophets! A quick internet search reveals that student loan forgiveness is a popular topic, but many of the proposed solutions are simply ways to “tread water” at best – written by people who are great at writing articles, but have zero experience working with those who have actually taken out a private loan.
At worst, these articles serve as lucrative referral platforms for “solutions” that are not in the borrower’s best interest, and may even leave them in worse trouble than they started with.
Deferment, forbearance, or calling your lender (among other commonly mentioned “solutions”) are unlikely to result in any long term resolution of your student loan – and this is coming from someone who spends the majority of their days on the phone with private loan lenders and debt collectors.
Unless you like getting yelled at and ridiculed, then yes; definitely call your lender while you’re current and ask about settling (I’m looking at you, Navient).
For profit lenders have no reasonable incentive to settle for a major reduction unless the loan has become a non-performing asset – which takes place once the account defaults. This can take between 6-8 months of nonpayment depending on the lender.
Unfortunately, many of the articles written on this topic that I’ve come across are from hired blog writers who either have no experience actually working with those who have taken out a private loan, directly, or worse; middlemen who make $25 per call or more for borrowers that call into their “assistance numbers” – regardless of whether or not the borrower receives help.
Disclosure: Note, while the vast majority of these sites are non-expert lead generators trying to make a buck or two; some actual experts do refer students to other experts, such as Michael Bovee of Consumer Recovery Network. Michael is a legitimate debt expert, established in the industry, who often refers student loan clients to me. You may find his site and articles written by me in your search. However, sites such as his are the exception to the rule.
It’s easy to come across as an expert in the student loan industry – it’s much harder to be an actual expert.
Don’t fall for advice that sounds official, from companies that sound generic.
“The Private loan assistance center” “The center for student relief” “Student aid educators” “The Private Loan help center” “Student Loan Advocates”
(I just made these up off the top of my head based on the many lawsuits/complaints/articles I have read over the years – no association to an actual company intended, although I wouldn’t be surprised if there are active businesses out there with these names) –
Many of these relief/help/assistance marketers have no expertise whatsoever in private loans and do not care one bit whether you get actual help or not – they just want to get paid for referring your call/email/inquiry to a law firm or agency. If you’re truly a private student loan expert, you’d be proud to put your name on your work.
Keep in mind that these types of student debt relief companies may also try to charge you for federal programs that are available for free through the Department of Education, at www.studentaid.ed.gov. You never need to pay for a federal loan consolidation, loan repayment plan, or forgiveness application.
A true student loan counselor will recommend the best option for your situation (or in many cases, the least-worst option being all that is available) even if that does not fit into their specific business model.
I speak to callers all the time who are clearly not a good fit for student settlement negotiation; whether it is because they have a cosigner who does not want to go late from a current standing, a lack of funds, etc. I refer them elsewhere or try to find some other solution for their problem.
The most common cause of complaints against student debt relief businesses is convincing people to become clients who are simply not a good fit for the solution that they facilitate or provide (the sales-forward approach).
What about refinancing?
I’ve written about refinancing before, and it can be a great relief option for both private and federal student loans – in fact it’s the only other major option for private student loan relief aside from settlement.
But those who are falling behind on their monthly payment plans, who are looking for forgiveness, who do not have a good credit score, or those who have a high debt to income ratio (the most common reason for being declined for refinancing) will likely not qualify for this option – and refinance is not forgiveness in any way, shape, or form.
Refinancing has many benefits and is a great option for borrowers with solid income, a steady job, low debt to income ratio, who are looking to pay their loan off in full over time at a lower interest rate (including federal government student loan borrowers).
Refinance is not for people who want to have a large amount of their loans reduced or forgiven. There is a joke in the industry about student loan refinance just being for “doctors and lawyers”, and while it has evolved from that stereotype; a majority of struggling borrowers with loans that are private will still not qualify for this option.
Another article on the same topic mentioned refinancing as a way to try for private loan forgiveness. Actually, it’s the opposite.
If you’re trying to settle your debt for less than the full balance, you will usually get a better deal (once defaulted) from the original lender rather than a refinance lender, who can be much more aggressive and difficult to deal with (once in default).
I never recommend for borrowers to pursue the refinancing route if their ultimate plan is to settle, unless their original lender is extremely difficult or impossible to settle with.
As the only Certified Student Loan Counselor and Certified Credit Counselor in the US who specializes solely in private student loan resolution; let me boil it down for you – settlement is truly the closest thing to forgiveness for private loans for the majority of borrowers.
Yes, a very small number may get their loans discharged through a difficult (and expensive) Adversary Proceeding within a bankruptcy. But this still leaves any cosigners on the hook. It is simply not an option available for most people – but forgiveness (via settlement) is widely available to many borrowers.
The most difficult thing is coming up with funding, but with the options of structured settlement and/or holding strategies to buy time, this is something that your negotiator can plan with you.
I’m passionate about helping people just like you deal with your financial situation as quickly as possible. I hope this helped inform you about what is and isn’t possible with private student loan forgiveness.
You don’t have to live your life feeling burdened by the weight of your private loan hanging over your head constantly.
Many times, there is something you can do to help alleviate your situation. Forgiveness might not be the right option, but as you can see there are other doors open to you. And that’s where I come in.