08 December 2016

Student Loan Forgiveness for Private Debt. Does it Exist?

Photo of wallet with corner of two dollar bill sticking out.

Private student loan forgiveness does exist—but it’s rare.

Federal Student Aid defines loan forgiveness as:

The cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying that remaining portion of the loan.

Therefore, by definition, student loan forgiveness (and it’s other other incarnations—discharge, & cancellation) are for federal student loan debt.

That’s the rule.

Of course, like most rules, there are exceptions.

We are aware of just two.

  1. Discharge in Bankruptcy
  2. Student Loan Benefits for Military Service

Bankruptcy Can Discharge Private Student Loans.

Private student loans (as well as Federal Student Loans) can be forgiven/discharged through bankruptcy if you can prove that repayment would cause you ‘undue hardship’.

This can be challenging.

Your hardship must be tested in an adversary proceeding in bankruptcy court. So you will probably want a lawyer.

But lawyers cost money—sometimes lots of money.

So you will probably not want a lawyer.!

How can anyone afford a lawyer while in the midst of a severe financial hardship?

It's a pickle for sure.

Nolo (do-it-yourself) may be your only option—but at least it's an option.

Check out the Brunner Test to help you determine if this may be something you want to pursue.

Military Service Can Forgive Private Student Loans.

Military service can really blur-the-lines between federal and private student loan debt.

Most student loan benefits—such as loan forgiveness, payment deferment, and disability discharge—are only for federal student loan debt.

Thankfully, membership has it’s privileges.

Service in the US Armed Forces includes all federal student loan repayment benefits (of course!) plus several more that can affect private student loan debt.

These benefits may include...

  • Private student loan forgiveness
  • Interest rate cap on private student loans
  • Deferment of private student loan payments

To name a few.

For a more comprehensive list of military student loan benefits please review the PDF released by Federal Student Aid.

Thank You.
We want to take this time to thank everyone who has served in the US Armed Forces. You are a patriot for helping keep us safe.

Good luck with student loan forgiveness.

Please help us learn more.
Do you know of other ways to forgive private student loan debt?
Please let us know by leaving a comment below.