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We have written extensively on repayment options for federal student loans (and there are plenty), but have stayed somewhat silent on private student loans. The reason is that each lender is going to have different repayment options for private debt. Some may require small payments while undergoing economic hardship, others may not.
For example, Discover does not offer traditional economic hardship or unemployment deferments, but allows borrowers to temporarily reduce interest rates and limit monthly payments to $50 under some circumstances. Sallie Mae does not offer unemployment deferments, but does allow borrowers to put loans into forbearance in some cases (after paying fees on the loans). These are good examples because it can show how repayment policies differ based on your lender. It also means that traditional methods for reducing payments, such as deferments or forbearance, may not be the best options with private higher education debt. With private student loans, these are generally “short-lived” options (if they are options at all).
If you are among the small percentage of borrowers with excessive private student loans, the world is not ending, and you may have options (just not as many). Following these steps may help.
Refinance your student loans: If you have excessive private higher education debt, the first thing to look into is whether you can refinance your loans at lower interest rates. However, you have to be approved to refinance loans, which means your credit score will be taken into account. We have recently written guides for fixing errors on credit reports (about one in four reports have errors) that can serve as a useful first step. Applying for a secured credit card and making small monthly payments can also help. If you have a solid credit rating (over 700) but student loan payments are becoming painful, ask your bank about refinancing options.
Pay private student loans first: The vast majority of borrowers with private student loans also have federal student loans. If you are in a situation where income is limited and debt is high, placing your federal student loans into an income-based repayment plan (such as REPAYE) will allow you to shift your focus on paying off private student loans. Private student loans have fewer repayment options, so from a strategic point of view, it makes sense to pay them off first.
Cut other expenses to the bare minimum: To quickly pay off private student loans, do whatever it takes to cut other expenses. If you have a health insurance policy through the health care exchange, apply for federal subsidies to lower monthly payments. Live at home or with roommates to reduce the amount of rent owed each month. Consider using public transportation instead of leasing a vehicle and paying car insurance.
Your Best Bet for Reducing Private Student Loans? Knock Them Out First
The best strategy to reduce financial pain caused by private student loans is to simply pay them off as quickly as possible – whatever it takes. Still, this may not be an option for everyone.
Filing for bankruptcy may be another option for borrowers, as it can discharge or reduce debts. For people with astronomically high private loan balances and low income, this is an option you may want to explore. If you live in Missouri, do realize that courts in our state allow the use of the ‘totality of circumstances test’, which is more lenient than the Brunner test. Take our word for it, because we have experience helping graduates reduce student loan debt.
The Kansas City bankruptcy attorneys at The Sader Law Firm can help former students and graduates manage higher education debts.
