Few options available to help pay off private student loans

— -- Last October, President Obama announced a broad initiative to provide relief for college graduates struggling to repay student loans. In a speech at the University of Colorado in Denver, Obama said the plan will lower monthly payments for 1.6 million borrowers.

Jessica Fernandez won't be one of them.

Fernandez, 29, of Bridgewater, N.J., was laid off from her full-time job two years ago. She only recently found a job with a temp agency that pays less than half what she had been earning. She and her 8-year-old daughter had to move in with her parents because she could no longer pay the bills, which include student loan payments of more than $1,000 a month.

That would appear to make Fernandez a prime candidate for the president's loan relief program. However, more than $35,000 of her student loans are private. Those loans, which aren't issued or guaranteed by the federal government, have few of the protections provided for borrowers with federal student loans.

The sluggish economy has made the differences between federal and private loans even more pronounced.

For example, federal student loan borrowers who are unemployed are entitled to defer payments on their loans for up to three years. Borrowers earning less than they had been expected to can apply for a reduction in payments, based on their discretionary income. After 25 years of making qualified income-based repayments, the balance of the loan is forgiven, even if it hasn't been fully paid off.

The Obama administration's plan would forgive the loan balance after 20 years.

For private lenders, such relief is voluntary — and rare, says Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project.

Loonin says she's tried to negotiate with lenders on behalf of low-income borrowers who are unlikely to ever repay their loans, with little success.

"We're almost never able to get any type of workout or modification or anything more than some very short-term payment relief," she says.

Shannon Doyle, a credit counselor for Lutheran Social Service of Minnesota, has experienced similar problems with clients who have private student loans. "It's so frustrating, because they're really at the mercy of the lender," she says.

Private and federal student loans are identical in one important respect: Both are nearly impossible to discharge in bankruptcy.

Loonin says this treatment of private student loans, which doesn't extend to any other kind of consumer debt, gives private lenders little incentive to negotiate with borrowers having trouble repaying their loans.

Fernandez's loans were issued by Sallie Mae, the nation's largest issuer of private student loans. For privacy reasons, Sallie Mae was unable to comment on Fernandez's specific situation.

But spokeswoman Martha Holler says the company recognizes that finding a job today takes longer than it did in the past, and says Sallie Mae offers a variety of modification options for borrowers experiencing financial difficulties.

"We invest in students who invest in their futures, and the vast majority are successful," she says. Sallie Mae's default rate is 3.7%, down from 5.4% a year ago, she says.

Private loan confusion

As the cost of college has outpaced increases in federal aid, the volume of private loans has soared, according to a recent analysis by the Project on Student Debt.