Does Debt Relief Help With Student Loans?

If you’re struggling to repay student loans, you’re not alone—almost 7 million federal student loan borrowers had student loans that were in default as of Sept. 2023. Fortunately, there are debt relief options that can help you get out of debt faster.

Federal student loans come with access to possible debt relief programs proposed by the Biden administration. Meanwhile, you may receive debt relief for a private student loan through a debt relief company. Below, we discuss both options and the status of federal student loan relief programs.

Do debt relief programs cover student loans?

Debt relief programs are usually offered by for-profit organizations. These companies help individuals negotiate loan amounts and rates on unsecured debts, such as credit cards and student loans, for a fee. 

When you work with a debt relief agency, it typically negotiates with your creditors to pay less than you owe, which is known as debt settlement. Instead of paying your debts on your own, you typically deposit money into a savings account, and the debt relief company uses those funds to pay your creditors.

While debt settlement can reduce your debt, it has significant drawbacks. For example, settling your debt can cause serious harm to your credit score. These programs can cover private student loans, but federal student loans usually have their own settlement guidelines.

Can debt relief programs help with private student loans?

Some debt relief companies can help you settle private student loans. In fact, it might make sense to pursue debt relief for private loans versus federal loans since they don’t require approval from the U.S. Department of Education. 

Further, federal loans offer benefits, such as multiple options to repay the loan if facing a hardship, whereas private student loans are not required to offer those repayment benefits.

Note that your lender might not allow you to settle your private student loans unless they’re in default. However, if you stop paying your loans intentionally to be able to settle your debt, it could cause a significant drop in your credit score.

Should you consider a debt relief program for your student loans?

Before you enroll in a debt relief program to settle your debt, consider other repayment strategies that won’t damage your credit first. Consider putting your loans in forbearance or deferment if you have a federal student loan. Those options temporarily stop your payments.

If you have a private student loan, contact your lender to see if you can negotiate your rates on your own to lower your loan amounts. Some private lenders may also allow you to pause payments. For example, SoFi offers hardship forbearance for students who have lost their jobs through no fault of their own (meaning you will not qualify if you decide to quit your job).

In addition, look into refinancing your private student loans, which involves swapping them out with a new private loan. If you can secure a loan with a lower rate, you could lower your monthly payments and save thousands of dollars in interest.

Expert take: What’s the long-term impact of debt relief?

Erin Kinkade

CFP®

Debt relief and debt forgiveness both drop your credit score immediately. You can rebuild your credit score over time by using and repaying credit wisely. In addition, the amount of the debt relieved or forgiven could be included in your taxable income; there are exclusions for student debt relieved after December 31, 2020, and before January 1, 2026.

Is one-time debt relief for student loans taking place?

When Joe Biden campaigned, he promised to cancel up to $10,000 in debt for student loan borrowers. He created a formal proposal after winning the presidency in 2020, but his plan was struck down by the courts.

Based on President Biden’s debt relief program, when will student loans be forgiven?

The Supreme Court ruled last year that President Biden’s one-time forgiveness plan was unlawful, forcing Biden’s team to consider alternative ways to offer forgiveness. 

For example, the Department of Education’s Saving on a Valuable Education (SAVE) plan shortens the timeframe for some students receiving forgiveness from 25 to as short as 10 years. Under this plan, some students who borrowed $12,000 or less had some of their loans forgiven in May 2024.

However, the federal appeals court blocked the SAVE program on July 19. The Biden administration has asked the Supreme Court to remove the block, but it’s uncertain when or if this will happen. As of August 15, 2024, Vice President Kamala Harris hasn’t proposed any new forgiveness plan during her presidential campaign.

What is the status of debt relief for student loans in the Supreme Court?

The Biden administration’s one-time debt relief program was blocked by the Supreme Court on June 20, 2023, forcing the administration to come up with another plan. While the SAVE plan has also been put on hold, the Biden Administration has asked the court to remove the block. 

That said, it’s uncertain whether the Supreme Court will grant the administration’s request. So, as of this writing, the status of mass debt relief for federal student loans remains in limbo.

Does student debt relief apply to Parent PLUS loans?

Yes, if you have a Parent PLUS loan, you may be eligible to receive forgiveness through various programs, such as the Income-Contingent Repayment (ICR) plan and Public Service Loan Forgiveness. To qualify for these programs as a parent, you must consolidate into a Direct Consolidation Loan.

What is the economic impact of one-time debt relief on student loans?

Proponents of Biden’s student loan forgiveness plan argue that providing debt relief to borrowers could increase consumer spending by billions of dollars each year over the next decade. That’s because borrowers who have some or all of their loans forgiven could have more money to spend on homes or cars.

However, one-time debt relief could have some harmful effects on the economy. For example, the Committee for a Responsible Federal Budget, a non-partisan organization, published an article stating that one-time federal debt forgiveness could add billions of dollars to the U.S. deficit and cost around $250 to $750 billion.

Alternatives to debt relief companies for student loans

Income-driven repayment plans

Income-driven repayment (IDR) plans are a viable alternative to debt relief companies for federal student loan borrowers. These plans adjust your monthly payment based on your income and family size, ensuring payments remain manageable. 

There are several types of IDR plans, including Income-based Repayment (IBR) and Pay As You Earn (PAYE), each offering unique benefits and eligibility criteria.

PSLF

Public Service Loan Forgiveness (PSLF) is another excellent option for federal student loan borrowers working in public service. 

After making 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer, the remaining loan balance can be forgiven. This program is particularly beneficial for those in government, nonprofit, and other public service roles.

Refinance

Refinancing student loans can be an effective way to lower your interest rates and monthly payments. This option is available for both federal and private student loans. 

By refinancing, you obtain a new loan with a lower interest rate, which can lead to significant savings over the life of the loan. However, refinancing federal loans with a private lender means losing access to federal benefits and protections.

Negotiate with lenders

Negotiating directly with your lenders can also provide relief. Some lenders may offer temporary forbearance, deferment, or modified repayment plans during financial hardship. 

By contacting your lender, you might be able to arrange more favorable terms, making your debt more manageable without the need for third-party debt relief companies.

FAQ

Does National Debt Relief help with student loans?

National Debt Relief primarily focuses on unsecured debts like credit cards and personal loans. While it may offer some assistance with private student loans, federal loans have specific relief options that may be more beneficial.

Does Freedom Debt Relief help with student loans?

Like National Debt Relief, Freedom Debt Relief mainly deals with unsecured debts. Although it may provide services for private student loans, borrowers should carefully consider other relief options for federal loans.

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