If a borrower needs private student loan debt relief, they may need to speak to their lender. Although a bank is unlikely to give a student loan debt reduction, it may work with the lender to create a repayment plan.
Private loans make up about eight percent of the total outstanding student loans in the United States. Like federal loans, borrowers can ask for forbearance or deferment.
Forbearance allows borrowers to stop making monthly payments temporarily. The lender may also reduce the payments temporarily. However, the loan will still accrue interest.
A private lender may let borrowers pay only interest payments while in school, doing an internship, or experience a financial crisis, such as being unemployed. The private lender may grant a lender forbearance up to 12 months, but it is at their discretion. Often, the borrower needs to apply for forbearance two months at a time.
Deferment is another period when borrowers do not need to make payments. But unlike forbearance, the interest on the principal usually does not continue to accumulate. Deferment is preferable to forbearance for this reason. It essentially freezes the loan until the deferment period is over.
A lender may defer a borrower’s student loan for up to 12 months as well. Deferment is common when the student is still in school. Students with government or private loans usually defer them until they graduate or a few months later.
Borrowers with federal student loans have more options. They can apply for one of the Income-driven repayment (IDR) plans, which include:
- Revised Pay as You Earn (REPAYE) Repayment Plan. REPAYE payments are 10 percent of your discretionary income up to 20 to 25 years.
- Pay as You Earn (PAYE) Repayment Plan. PAYE payments are 10 percent of your discretionary income up to 20 years.
- Income-Based Repayment (IBR) Plan. IBR payments are 15 percent of your discretionary income up to 25 years.
- Income-Contingent Repayment (ICR) Plan. ICR payments are either 20 percent of your discretionary income or fixed payments based on a 12-year term. The term can last up to 25 years, however.
At the end of the 20- to 25-year term period, the government forgives the remaining balance. The best of the four options is the one that gives the borrower the lowest monthly payment. The servicer can review each of the options with the borrower to determine the monthly obligation. In some cases, the borrower’s marital status could be a factor.
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