Private loans do not have the same range of cancellation options as federal student loans. Although limited, cancellations for federal loans are required by law. Private student loan cancellations are another story. Unless the private lender made a promise about a cancellation (or discharge) program, private lenders MAY cancel loans, but they usually don’t have to. You may also want to consider filing for bankruptcy relief. Bankruptcy is a difficult, but not way to cancel private student loans.
You can ask your private lender for relief, but these lenders are not required by law to help you. Some private lenders are now offering disability and death discharges. Sallie Mae, for example, announced a total and permanent disability program for Smart Option borrowers as well as forgiveness of unpaid balances if a primary borrower dies. Wells Fargo announced a similar program in December 2010. Some lenders will automatically allow a private loan discharge if the borrower obtained a federal disability discharge. Lenders will also in some cases use the criteria for federal loan discharges. In other cases, the lenders use criteria that are completely different than the federal programs.
Read your loan contract very carefully to learn about your private loan’s particular terms, conditions, benefits, rates, fees, and penalties. Private lenders do have to honor any promises they make about terms and benefits. Some private lenders offer a cancellation program for some loan products, but not others. Some will offer to cancel only a portion of a loan in certain circumstances. You should consider contacting the Consumer Financial Protection Bureau (CFPB) if your lender does not answer your questions about these programs or refuses to give you the information you need.
There are tax consequences if a private lender agrees to cancel a student loan. It is a good idea to consult a tax professional for more information.