Should You Press Pause on Private Student Loans?

Forbearance isn’t the only way to get a more manageable private student loan payment.
Ryan Lane
By Ryan Lane 
Edited by Des Toups

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Federal student loan payments have been automatically suspended through Aug. 31, 2022.

If you have private student loans, however, payments remain due — unless you’ve paused them.

Roughly 2.5% of outstanding private loan balances were in forbearance as of the end of September 2021, according to December 2021 data from MeasureOne, which tracks data on private student lending.

If you need a break from private loan bills, forbearance can help. But you’ll pay more by using forbearance — and it’s not the only way to get a more manageable payment.

Here’s what to know about private student loan relief options.

What lenders are offering

Most private lenders will let you apply for a natural disaster forbearance due to the pandemic. This forbearance pauses your payments, typically for 90 days, but lenders’ policies differ.

Other lenders’ programs may be winding down. For example, Earnest offered borrowers three months of forbearance due to COVID-19 before June 30. Borrowers who request assistance because of the pandemic after that date can now receive one month for a limited time.

If a natural disaster forbearance is no longer available and you still can't pay, contact your lender.

You may be able to continue pausing payments with a general forbearance. Some lenders, including Earnest, may also let you make reduced payments if you’ve already fallen behind.

When to stick with forbearance

Forbearance can make sense if you need the money from your private loan payments for something more important, like rent. But understand the costs of this option.

While federal loans are currently suspended interest-free, private loans will accrue interest in forbearance, making them more expensive.

Still, paying interest is better than ignoring payments and letting private loans default. That can lead to long-term consequences, like credit damage.

“[Default] can definitely hurt your chances of other financial goals and aspirations you have,” says Garret Colao, a certified financial planner and financial consultant at North Star Resource Group in Minneapolis. “A house, a car — all that stuff will be in trouble.”

Private loans usually default once payments are 120 days past due.

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Refinancing is an alternative

If you’re using forbearance to increase your cash flow, consider refinancing to bridge the gap between no payment and your current bill instead.

Refinancing replaces your existing loan with a new loan with new terms. Unlike forbearance, refinancing can reduce your long-term costs.

“This is a good time to look to refinance at a lower interest rate,” Colao says.

There’s little downside to refinancing private student loans because they don’t qualify for federal loan benefits, like the current payment suspension.

If you can qualify for a lower rate, refinancing can save you money now and in the long run.

For example, refinancing a $20,000 private loan from 10% to 5% interest would lower your monthly bills by $52 and save you $6,260 over a 10-year repayment term. Most refinancing lenders offer longer terms that can cut payments even further. At 15 years, for example, the monthly payment on that $20,000 refinanced loan would be $106 less.

You’ll need a credit score at least in the high 600s, steady employment and enough income to cover your debts to qualify. Most lenders let you apply with a co-signer if you don’t meet those criteria.

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