Private student loans can be a confusing maze. With less flexibility than federal loans, navigating private debt takes strategy and know-how.
Over 3 million students borrow private loans each year. And the total private student loan debt now tops $130 billion according to CNBC.
If you’re struggling with burdensome private loans, take heart. You can take control and make your debt more manageable.
This blog shares insider tips on how to deal with private student loans wisely.
Know the Difference Between Federal and Private Loans
First, understand how private student loans differ from Federal. Private lenders are banks, credit unions, schools, and other financial institutions. Federal loans come directly from the government.
Federal Student Loans
Federal student loans offer many benefits that private loans do not. This includes lower fixed interest rates, flexible repayment options, and forgiveness programs.
You can research federal loan options and apply by:
- Completing the Free Application for Federal Student Aid (FAFSA)
- Visiting StudentAid.gov to view available federal loans
- Contacting your college’s financial aid office
The most common types of Federal loans are Direct Subsidized Loans and Direct Unsubsidized Loans. Other options may include PLUS Loans and Perkins Loans.
Private Student Loan Options
Private student loans are offered by lenders like banks and credit unions. Interest rates are typically higher and variable. Borrowers usually need good credit or a cosigner to qualify.
You can research private student loan lenders and compare options by:
- Checking your bank or credit union’s student loan offerings
- Using online comparison tools like Credible and LendKey
- Asking your college financial aid office for reputable private lenders
Only turn to private loans when federal options won’t fully cover additional education costs. Understand the terms before borrowing.
Communicate Openly With Your Lender
If you’re having trouble affording your private loan payment, contact your lender right away. Explain your situation and request alternative repayment options.
Provide documentation like pay stubs, bills, and bank statements to make your case. Show you’re willing to pay something reasonable.
Your lender may offer reduced payments, deferment, or forbearance. Get any relief agreement in writing before signing.
Refinancing Private Student Loans to Improve Your Rate
With good credit, you may qualify to refinance your private loans at a lower interest rate. This involves taking out a new loan to pay off the old one.
Refinancing saves money long-term by reducing your rate. And some lenders let you switch from variable to fixed interest rates for stability.
Check Your Credit Report
Before applying for private student loans or attempting to refinance, it’s important to check your credit score and report.
Lenders will evaluate your creditworthiness as part of making loan decisions. Know where you stand by:
- Obtaining your free credit reports from AnnualCreditReport.com
- Using a free service like Credit Karma or Equifax to view your credit scores
- Reviewing all items on your reports and disputing any errors
- Taking steps to improve your credit score if needed, like paying bills on time and lowering credit utilization
Strong credit is key for the best refinancing offers. Check your credit report and score so there are no surprises.
Make Payments Affordable With Proper Budgeting
Creating a realistic budget is crucial for managing private loan payments along with other expenses.
List your income, necessary costs, and debt payments. Look for areas to save, like housing, transportation, and discretionary spending.
When paying down high-interest debt, consider the debt avalanche method of focusing on the highest interest rate first. This saves the most money overall compared to the debt snowball method of paying the smallest balance first.
Avoid Default and Collection at All Costs
It may be tempting to default if you feel overwhelmed. But don’t go there! The consequences of defaulting on private student loans are severe.
Your credit score will plummet, making future borrowing difficult. The loan balance will balloon with added late fees. Legal action could result in wage garnishment.
Avoid black marks on your credit at all costs. Being proactive with your lender is better for your financial health.
Student Loans and Bankruptcy
One question that borrowers may have is whether student loans can be discharged through bankruptcy.
For most federal and private student loans, the answer is no – they are not dischargeable in bankruptcy except in cases of undue hardship.
However, there are certain types of private loans that can potentially be discharged in bankruptcy:
- Private loans that were not used strictly for qualified education expenses
- Private loans made by for-profit lenders who did not comply with state regulations
If you are considering bankruptcy, it’s important to consult an attorney to review your specific loans and options. They can help determine if any of your debt may be eligible for discharge.
For most borrowers, though, federal and private student loans will still be owed after bankruptcy.
Don’t Fall for Student Loan Debt Relief Scams
Steer clear of any company promising complete private loan forgiveness or elimination. These are likely scams.
The Federal Trade Commission cautions borrowers to avoid debt relief companies charging upfront fees in exchange for help.
Be wary of any unsolicited offers, especially those guaranteeing results. Stick to assistance from your lender or legitimate financial advisors.
Get Grants and Scholarships to Avoid Large Loans
The best way to deal with private loans is to minimize how much you borrow in the first place.
There are many scholarship search sites to help you find potential aid opportunities, including:
- Fastweb.com
- Scholarships.com
- CareerOneStop
- Your chosen college’s financial aid website
Make sure to apply to all scholarships that fit your background, demographics, interests, and academic strengths. Don’t limit yourself – even small scholarships of a few hundred dollars add up.
Pell Grants
Complete the FAFSA to qualify for Federal Pell Grants that you don’t repay. Pell Grants provided over $28 billion to students last year.
Save an Average of $50 a Month with FREE Cell Phone Service
If you receive a Pell Grant, you can receive free cell phone service through the Affordable Connectivity Program (ACP) when you apply and qualify through select ACP wireless providers.
With the average cell phone and data bill costing you $50 a month, cutting this bill adds up to $600+ yearly savings you can put toward student loan payments!
Eliminate Your Cell Phone Bill with EASY Wireless
EASY Wireless is a national ACP provider offering FREE cell phone and data service to eligible consumers. Learn how to apply and qualify for this program at EASY Wireless.
Pick Up Side Work to Earn Extra Money
Making extra money helps you get ahead on private loan payments. Delivering food or driving for a rideshare app are quick ways to earn.
Tutoring, freelance writing, donating plasma, and participating in surveys are other options. The key is consistency in earning and saving extra.
Even small amounts add up. An extra $100 per month can pay off debt years earlier and save thousands in interest.
Take Control of Your Private Student Loans
Managing private student loan debt takes strategy and effort. But you can get ahead of it with smart planning.
Communicate with your lender, make a realistic budget, avoid pitfalls, and maximize your income. Little steps lead to big progress.
While hard work is required, you can take control of your financial situation – one loan payment at a time.
