Struggling with private student loan payments can feel overwhelming—especially when you’re doing everything you can and it’s still not enough. Maybe you’ve heard about the possibility of settling your loan for less than what you owe, but you’re unsure if it’s realistic or how the process actually works. 

If that sounds like your situation, you’re not alone. Many borrowers with private student loans face similar challenges, especially since these loans don’t come with the same protections and relief options as federal loans. 

What Are Private Student Loans? 

Private student loans are offered by banks, other financial institutions, and state-affiliated organizations to help cover educational expenses. Terms and conditions are set by the lender. They are an alternative to federal student loans, which are offered by the federal government. 

How Do Private Student Loans Differ From Federal Loans? 

In the U.S., private student loans account for about 8% of all student loan debt. Aside from the lender, there are a number of other key ways in which private and federal student loans are different: 

Federal Student Loans 

• Repayment on federal student loans typically begins six months after graduation, leaving school, or dropping below half-time enrollment. 
• The interest rate is fixed. 
• Your loan may be subsidized. 
• You may not need a credit check. 

Private Student Loans 

• Private student loans often require payments while in school, but some lenders offer deferment options until after graduation. 
• The interest rate can be fixed or variable. 
• They are often not subsidized. 
• You’ll usually need an established credit history or a cosigner. 

Repaying a Private Student Loan 

Generally, private student loans have fewer protections than federal loans. Thus, if you find that your loan payments are unmanageable, you may need to speak with your lender about any repayment options. You can also consider refinancing for a lower rate. This involves swapping your private student loan for a new loan, either through the same lender or a different one. 

Student Loan Refinance vs. Debt Settlement  

Refinancing replaces your current loan with a new one—ideally with a lower interest rate or smaller monthly payments. It’s best if you have strong credit and steady income, and you’re current on your payments. 

Debt settlement, on the other hand, involves negotiating with your lender to pay less than you owe. It’s typically used when you’re in default or facing serious financial hardship. 

Refinancing can save you money over time, but keeps the debt intact. Settlement hurts your credit but resolves the debt faster, often for less than the full balance. Typically, settlement is sought when a loan is in default and refinancing is not an option. 

Refinancing can lower monthly payments and interest rates, but may extend the loan term, potentially increasing total interest paid over time. Debt settlement can resolve the debt for less than owed, but typically only after default and can have significant credit and tax implications. 

Private Student Loan Settlement  

With private student loan settlement, you’ll hire a company such as National Debt Relief to negotiate with your lender to settle your obligations for less than your actual balance. 

The process begins with a free consultation during which a debt expert identifies your financial situation and goals, then creates an affordable plan for you. Rather than pay your lender, you’ll make monthly deposits into a federally insured account that you control. 

As those savings build up, National Debt Relief will seek to negotiate a reduced balance that is subject to your approval. Creditors may agree because they would rather get something than nothing.  

Because debt settlement calls for you to stop making your monthly creditor payments, debt settlement will negatively affect your credit scores. However, after your account is zeroed out, you can begin rebuilding your credit. 

In Summary  

If your private student loan payments have become too much to handle, know that you have options, and settlement might be one of them. While this approach isn’t right for everyone, it can offer meaningful relief for those facing financial hardship, especially when refinancing or other solutions aren’t available. 

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