Earlier this year, President Biden announced that he'd cancel up to $20,000 in student loan debt for eligible candidates. Unfortunately, this student loan forgiveness works for federal loans only; private loans aren't eligible. But before you start wondering, "how much of a personal loan I can get to consolidate my loans?" there are still some repayment options available to help you reduce your student loan debt. Here's what you need to know.
The difference between federal and private student loans
Students who can't pay for higher education costs out-of-pocket will typically get student loans to bridge the gap in their finances. There are typically two options of student loans: Federal and Private.
Federal student loan forgiveness programs include the Federal Perkins Loan, Direct Subsidized Student Loans, and Direct Unsubsidized Student Loans programs. These loans are backed by the government and have fixed interest rates that range from 3% to 6%.
Federal student loans are often cheaper than private student loans, but there are some disadvantages. Federal loans are issued by the government, whereas private loans are issued by banks or other lenders. Federal student loans have stricter terms and requirements that all students may not meet, and the maximum amount may not cover your full tuition costs.
Private student loans are more expensive than federal student loans, but they offer several advantages. Private student loans aren't subject to government regulation, so they may have more favorable terms and conditions.
Can you get private student loans forgiven?
Private student loans are very difficult to get forgiven as most lenders require borrowers to repay the loan in full even if they declare bankruptcy. The only private student loans that may be forgiven in bankruptcy are those taken out for graduate or professional school.
What to do if you can't handle your private student loan repayment
If you find that you can't repay your private student loan, there are a few options available to you. You may be able to extend the repayment period, enter into a forbearance agreement, or ask your lender to modify the terms of the loan.
There's also the option of consolidating them onto a personal loan or credit card with an introductory promotional rate. This will likely result in a lower interest rate and make the repayment process much more manageable, but it should only be considered if you can pay back the debt quickly. Otherwise, you could have a higher interest rate than your original student loan.
Suppose you're not sure you could pay back your entire loan before a promotional period ends. In that case, there's the option of moving just a portion of your student loan debt over to a credit card or personal loan, which will at least prevent a part of your debt from accruing more interest. Again, just make sure you can pay it all off before the promotional period ends.
The bottom line
Private student loans are a complex and expensive form of financial assistance, but they can be very beneficial if you qualify. If you have questions about private student loans or want to know more about how they may be able to help you, speak with a qualified financial advisor.
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