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Private Student Loan Debt Restructuring Options and Strategies

By Spodek Law Group | February 20, 2024

Private Student Loan Debt Restructuring: Options and Strategies

Dealing with overwhelming private student loan debt can feel scary and confusing. I totally get it – trying to navigate repayment plans, forbearance, deferment, or even bankruptcy can be really tough. But there are options out there to help restructure your loans and make payments more affordable. This article outlines strategies you can take to tackle private student loans and get your finances back on track.

Refinancing Your Private Student Loans

One of the best ways to lower your monthly payments on private student loans is to refinance at a lower interest rate. When you refinance, you take out a new loan to pay off your existing loans. Ideally you’ll qualify for a better rate based on improved credit or income since you first borrowed.

Refinancing can potentially:

  • Lower your interest rate
  • Shorten your repayment term
  • Consolidate multiple loans into one payment

Some top lenders to consider for refinancing include SoFi, Earnest, and CommonBond. Be sure to shop around and compare offers from multiple lenders.

Things to consider when refinancing:

  • You may lose certain protections like income-driven repayment and forgiveness options
  • Variable rates could go up over time
  • Watch out for origination fees and prepayment penalties

Overall though, refinancing can make your debt much more manageable if you secure a good rate. Just be sure you understand the tradeoffs.

Enrolling in an Income-Driven Repayment Plan

If you have federal as well as private student loans, consider enrolling your federal loans into an income-driven repayment (IDR) plan like REPAYE or PAYE. This can lower your monthly payments on federal loans to 10-20% of discretionary income.

Doing this allows you to focus more cash flow towards tackling your private student loans aggressively. You may even be able to enroll your private loans into an extended repayment plan or partial financial hardship program once you’ve lowered the monthly burden of federal loans.

Deferment and Forbearance Options

If you’re struggling to keep up with payments month-to-month, most private lenders like Sallie Mae offer options to temporarily suspend or reduce payments.

Deferment pauses payments completely if you go back to school, experience unemployment, or meet other qualifying events. Interest continues accruing, but no late fees would be charged.

Forbearance allows you to make smaller payments, or even postpone payments entirely for 12 months, due to financial hardship. You’d still owe interest during this time.

These options provide temporary relief when money is tight. Just have an exit strategy so payments and interest don’t snowball out of control.

Settling Debt for Less than Owed

After making on-time payments for a period of time (usually 1-2 years), you may have the option to settle your private student loan debt for less than the full balance owed.

This involves negotiating with the lender to make a lump-sum payment, less than the remaining principal and interest owed, to consider the debt paid in full. The lender may accept a settlement since they get money right away, instead of you potentially defaulting further down the road.

Just be aware – settled debt still gets reported to credit bureaus and can hurt your score. But it does resolve collections calls and legal action. Student Loan Hero has a great guide on the pros and cons of settling student loans.

Rehabilitation Programs to Get Out of Default

If you’ve already defaulted on private student loans, meaning you are 270+ days past due, lenders like Sallie Mae have rehabilitation programs to get accounts back in good standing.

This involves making 9 on-time payments over 10 months to demonstrate you can meet payment obligations going forward. At that point, the loans are taken out of default status and become eligible for more repayment programs.

Rehabbing loans removes the default line from your credit report, but not the late payments during delinquency. It stops debt collection calls and legal action. So while your score won’t instantly recover, at least you regain control over repayment.

Considering Private Student Loan Bankruptcy

Declaring bankruptcy traditionally does not discharge private student loans. However, in rare cases it is possible to prove repaying the debt would cause “undue hardship”.

According to Nolo, factors like permanent disability, low income compared to expenses, no assets, and inability to find work in your field can help meet the undue hardship standard.

You typically need to file an adversary proceeding lawsuit against the lender and convince the judge that repaying loans would deprive you of basic necessities. So consult with a bankruptcy attorney to analyze if your unique situation might qualify for a hardship claim.

Additional Strategies and Resources

Here are a few more tips for tackling private student loan debt:

  • Make extra payments when possible to pay down principal faster
  • Sell unused items online and put extra earnings towards debt
  • Pick up a side gig like rideshare driving, freelance work or tutoring
  • Stick to a tight budget minimizing housing, food, entertainment costs
  • Call lenders directly to explain your situation and request relief options

For more help navigating private student loans, check out these articles:

Dealing with crushing student loan debt is difficult, but know there are always options. With smart repayment strategies tailored to your situation, you can take back control of finances. Stay positive and proactive, developing a plan aligned to your long-term goals. It may take time and effort, but you’ve got this!


Videos Explaining Private Student Loan Options

Articles on Navigating Repayment

I hope this overview on options for restructuring and managing private student loans has been helpful. Please let me know if you have any other questions!

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