Can Private Student Loans Be Forgiven?

Unlike federal student loans, which offer various forgiveness programs, private student loans generally do not come with broad forgiveness options. Pathways to discharge private student loans are extremely limited and typically involve specific, rare circumstances.

The Nature of Private Loan Obligations

Private student loans are issued by private entities, such as banks, credit unions, and other financial institutions, rather than the federal government. This fundamental difference means they lack the extensive borrower protections and flexible repayment options that federal loans provide. Federal loans often feature income-driven repayment plans and various forgiveness programs, which are generally absent from private loan agreements.

Private loan terms are set by the lender and outlined in the loan contract, defining repayment schedules, interest rates, and default conditions. Most private student loans require a credit check, and many borrowers need a co-signer to qualify.

As private loans are not government-backed, they lack automatic provisions for forgiveness or broad discharge programs. Lenders assume more risk, making loan agreements less flexible. Borrowers are essentially locked into the terms agreed upon at origination, making private loan forgiveness rare.

Federal student loans, in contrast, offer benefits like Public Service Loan Forgiveness or income-driven repayment forgiveness, established by law to support borrowers. Private lenders, driven by profit, do not have the same mandate to offer such widespread relief.

Limited Pathways to Discharge

Despite the general lack of forgiveness, private student loans may be discharged under highly specific and rare circumstances. These situations are not guaranteed and are often challenging to achieve.

One pathway for discharge is the death of the borrower. While federal loans are typically discharged, private loan policies vary by lender. Many private lenders offer discharge, but it is not universally mandated. If a loan has a co-signer, they may remain responsible unless the agreement states otherwise or the lender has a policy to release them.

Total and Permanent Disability (TPD) can also be a basis for discharge, though it is more difficult to obtain for private loans. Some private lenders offer TPD discharge, but criteria are strict and vary by lender. Borrowers need rigorous proof, often medical certification of an impairment that is expected to last for at least 60 months or result in death, and prevents substantial gainful activity. A co-signer might remain responsible. Loans discharged due to death or disability are generally not considered taxable income federally through December 31, 2025, though state tax laws may differ.

Bankruptcy offers another challenging route for discharging private student loan debt. Unlike most unsecured debt, student loans are rarely discharged in bankruptcy. Discharge requires demonstrating “undue hardship,” a notoriously difficult legal standard. The “Brunner Test” is the most common framework, requiring borrowers to prove three conditions: inability to maintain a minimal standard of living if repaying the loan, a persistent difficult financial situation, and good-faith efforts to repay. This process typically involves an “adversary proceeding,” a separate lawsuit within the bankruptcy case, adding complexity and cost.

Managing Private Loan Debt

Since true forgiveness or discharge of private student loans is uncommon, borrowers explore alternative strategies to manage their debt. These options provide temporary relief or more manageable repayment terms, rather than eliminating the debt.

Deferment and forbearance are temporary options to postpone loan payments due to specific conditions like unemployment or financial hardship. During most periods of forbearance, and sometimes deferment, interest accrues, increasing the total amount owed. Eligibility for these options depends on the lender’s policies, which vary and are generally less generous than federal programs. Borrowers should contact their private loan servicer to understand available programs and terms.

Refinancing involves taking out a new loan to pay off existing private student loans. The goal is often to secure a lower interest rate or change repayment terms, such as extending the loan period to lower monthly payments. Eligibility depends on the borrower’s creditworthiness, income, and debt-to-income ratio. While refinancing can simplify payments by consolidating multiple loans, it is a new debt obligation, not a reduction of the original debt. Refinancing federal loans into a private loan results in the loss of federal protections and benefits.

In severe financial distress, borrowers might negotiate a settlement with their private loan lender. A settlement involves the lender agreeing to accept a lower amount than the total balance owed. This is typically a last resort for lenders when default is imminent, and negotiations are not guaranteed, often considered only with extreme inability to pay. If a portion of the debt is canceled, the canceled amount may be considered taxable income by the IRS and state tax authorities, unless exclusions apply. Borrowers may receive a Form 1099-C, Cancellation of Debt, which must be reported on their federal income tax return.