Private Student Loans for February 2024
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Private Student Loan Default: What Happens and How to Recover

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A private student loan default could damage your credit score and lead to other harsh consequences, such as wage garnishment or a lawsuit. Because of this, it’s critical to act fast when facing a student loan default.

Here’s what happens if you default on private student loans and how to recover.

Why does private student loan default happen?

A student loan default is when you fail to make payments outlined in your loan’s contract or promissory note. Reviewing your contract will help you understand the details regarding your lender’s policy on student loan default.

Here are some common events that can trigger a private student loan default.

Missed payments

According to the Consumer Financial Protection Bureau (CFPB), private student loans usually default after 90 days of missed payments. However, some private lenders will put your loan into default after the first missed payment.

In comparison, most federal student loan defaults happen after at least 270 days of nonpayment, although Perkins loans can be placed in default far sooner.

Cosigner enters bankruptcy or dies

Some borrowers may need a student loan cosigner to secure a lower interest rate on their private loans. In some cases, the cosigner’s death or bankruptcy could trigger an automatic private student loan default, even if you continue making payments on time.

If something happens to your cosigner, check with your lender to see if this will affect your loan.

Bankruptcy or default on another loan

You may also face private student loan default if your credit score drops dramatically. For instance, if you enter bankruptcy or default on another loan with that lender, your student loan debt may be affected.

As with the situations described above, review your loan contract or speak with your lender to understand how this situation may affect you.

What happens when you default on private student loans?

A private student loan default can have significant consequences. Exact penalties will vary by lender, but here’s a general idea of what to expect.

Damage to your credit report

If you make late payments or fail to make any payment at all, the lender may report it to the credit bureaus. The negative report may also hit your cosigner’s credit, generally staying on both credit histories for seven years.

During this time, you and your cosigner could struggle to qualify for other types of financing, such as a mortgage, car loan or credit card.

Collection calls and letters

Your lender can send your debt to a collections agency that will likely contact you and any cosigner listed to try to get repayment for your debt.

Hefty fees

If you default on your loans, you may get hit with late charges or collection, court and attorney fees. These additional expenses would increase your total balance due.

Legal action

If the lender has trouble collecting payment on a private student loan default, it may sue you (and your cosigner) for repayment.

If you lose the lawsuit, the court’s judgment could allow the lender to garnish your wages or potentially seize assets like your home, though some states have protections in certain instances.

If you find yourself in this situation, check out our guide on how to deal with a student loan lawsuit.

6 ways to recover from private student loan default

While wage garnishment sounds scary, you may avoid that and other harsh consequences by learning how to get private student loans out of default fast.

  1. Request help with student loan repayment
  2. Refinance the private student loan
  3. Settle your debt in collections
  4. Know your rights as a borrower
  5. Dispute the debt and request verification
  6. Consult a student loan lawyer

1. Request help with student loan repayment

Reach out to your student loan servicer to inquire about repayment options. Some lenders offer forbearance to help you catch up and avoid a private student loan default. You can also ask for a new repayment plan via email — here’s a sample student loan request letter to get the ball rolling.

2. Refinance the private student loan

If you struggle with your student loan payments, consider refinancing your student loan debt to get a lower monthly payment. Use our student loan refinance calculator to compare offers and estimate your potential savings.

However, having a delinquent or defaulted student loan will hurt your credit score — that can make it challenging to secure a new loan with a better rate, especially without a cosigner.

3. Settle your debt in collections

For private student loans in default, try negotiating a settlement of your student debt. Contact your debt collector and ask them how much it would take to settle the debt. This method might work best if you can offer them a cash payment of some of your debt as leverage in your negotiations.

4. Know your rights as a borrower

As a borrower, you still have certain rights — even if you default. As the Federal Trade Commission notes, it’s illegal for debt collectors to utilize “abusive, unfair or deceptive debt collection tactics.”

For instance, they are not allowed to call you before 8 a.m. or after 9 p.m. without your consent. And if you tell them not to contact you at work, it is illegal for them to continue. The Consumer Financial Protection Bureau (CFPB) has sample letters if you need to push back against a collections agency.

You should also be aware that the statute of limitations in your state could shield you from legal action against older debt.

5. Dispute the debt and request verification

A debt collector is legally required to provide you with information that proves you are, in fact, obligated to pay the debt.

Usually, you have to request full proof of the loan’s origins, and you have 30 days from the initial communication to request this validation. Once you get the debt validation letter, compare the information with your own records.

If there is a mismatch, you might be able to prove any of the following:

  • The debt isn’t valid
  • You owe less than the creditor claims
  • The debt doesn’t belong to you

6. Consult a student loan lawyer

If you have a private student loan in collections, a student loan lawyer might help. The attorney can issue a cease-and-desist letter to collections agencies to stop them from contacting you directly. The attorney can also explain any relevant state laws that may protect you.

Hiring a student loan lawyer might become necessary if you’re being sued over a private student loan default, and you may be able to find one willing to work pro bono or for a low fee.

While the terms student loan delinquency and default are often used interchangeably, key differences between the two vary by loan type.

  • Federal student loans: If you miss a payment on your federal student loan, the loan will be considered delinquent. However, the loan won’t default until after approximately 270 days of missed payments.
  • Private student loans: Since private lenders can make up their own rules, it can hard to define the differences between delinquency and default. Many lenders will consider your loan delinquent after a missed payment, putting your loans into default after 90 days of missed payments. However, some lenders automatically put your loans into default after just one missed payment.

Review your loan contract to understand your lender’s specific penalties regarding late and missed payments.

Allowing your student loans to enter default is generally a bad idea. A student loan default can have long-lasting consequences on your financial future, preventing you from achieving other goals.

If you can’t manage your current student loan repayment schedule, contact your loan servicer for assistance and consider refinancing.

Many organizations are dedicated to helping student loan borrowers responsibly manage their debt. However, be aware of scammers posing as debt-relief companies — especially if their promises sound too good to be true.

Here are some trusted student loan and credit counseling resources to help you tackle your student loan and personal debt challenges:

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