Private student loans repayment is generally more difficult for financially distressed borrowers. Private loans do not have the same range of flexible and affordable repayment plans. Private lenders may offer flexible repayment plans or other affordable options, but they are not required to do so. They must at least fulfill any promises they have made about the types of options they offer. Some lenders will charge for these services.
You should review your private loan contracts carefully to better understand what rights you have. Many private lenders will offer short-term repayment relief such as interest-only repayment plans. Borrower should review these plans carefully to evaluate whether the plans are likely to help in the long run.
Many private student lenders also offer small reductions in interest or other benefits for consecutive on-time or automatic debit payments. You should be careful as these “deals” are not always what they seem to be. Some lenders offer incentives that very few borrowers ever achieve. Many private lenders will offer short-term repayment relief such as six month interest-only plans. Borrowers should review these plans carefully to evaluate whether they are likely to help in the long run.
The Consumer Financial Protection Bureau noted in a January 2015 letter that federal regulators have repeatedly offered guidance encouraging private lenders to pursue workout arrangements and other relief for borrowers. This includes guidance on graduated repayment. The CFPB letter asks lenders to provide information about whether they are actually offering this type of relief. You should also check to make sure that your private lender is applying your payments properly.
Some non-profit lenders may offer more flexible options. Even those non-profit lenders that offer relief, however, rarely describe these programs in loan agreements, web sites, or other descriptive materials. You generally must know to ask for particular programs.
A private lender may offer loan deferment or forbearance. See section J of this sample private loan contract. Some lenders will charge for these services. Read your loan contract very carefully or ask your lender about these options. Some private lenders charge for forbearances. These types of charges should be explained in your loan agreement.
Private student lenders are not required to offer relief, but it definitely can’t hurt to ask! At a minimum, the lender must comply with any provisions in the contract spelling out relief options, including deferments and forbearances. You should request a copy of your loan agreement and other documents if you do not have them available.
Be wary of prolonged forbearances. These may help get you through a difficult time, but interest accrues while payments are postponed. A lender that grants repeated forbearances may seem to be helping you, but if you really cannot afford your payments, this may be prolonging inevitable default. Unlike some federal loans, interest will generally accrue during private loan deferment periods as well (including in-school deferments). If you can afford it, you should consider making interest-only payments during these postponement periods. Some private lenders may require you to do this. You should ask your lender about these programs and how they work, if possible, before taking out a private loan.