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Facing Private Student Loan Default? Here Are Your Options

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If you’re at risk of private student loan default, you’ll need to act fast to minimize the potential damage to your credit score and avoid harsh consequences — especially since defaulting on private student loans could lead to a lawsuit.

Here’s what you need to know — and do — if you’re at risk of defaulting on private student loans.

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What can trigger a private student loan default?

Each private student loan might have different default triggers outlined in the loan contract. Reviewing your contract will help you understand when your lender will consider your loan in default — and help you avoid those circumstances.

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

You miss payments

Defaulting on private student loans is often the result of missed payments, and in some cases, the lender will consider the loan in default after just a single missed payment. Check your loan agreement to see how long you have from the first missed payment until the loan defaults.

Cosigner enters bankruptcy or dies

Some borrowers may add a cosigner to their loan to potentially secure a lower interest rate — but if that cosigner should suffer a bankruptcy, or if they pass away, it could affect your loan. In a few cases, it could even trigger an automatic private student loan default, even if you’re making every payment on time. If something happens to your cosigner, be sure to check for possible ramifications for your loan.

You file for bankruptcy or default on another loan

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

As with the other situations described above, look at your loan contract to understand how this situation will affect you.

Here’s what happens when you default on private student loans

If your private student loan defaults, you’re probably wondering what comes next. Here’s what may unfold, though note that the situation can vary from lender to lender.

The private student loan delinquency will go on your credit report

If you make late payments, or fail to pay altogether, the lender will report it to the credit bureaus. The negative report may hit your cosigner’s credit as well, and will generally stay on your credit history for seven years, making it more difficult for you to borrow money during that time.

Your lender may put your private student loans in collections

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 private student loan debt. You may receive a lot of phone calls and letters demanding payment.

You might face hefty collections fees

Collection fees might be added to your debt after a student loan default, thus increasing your total balance.

You may face a lawsuit if you default on your private student loans

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 do have protections in certain cases.

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

6 options for handling private student loan default

Wage garnishment sounds scary, but the good news is that you can potentially avoid that and other harsh consequences by dealing with your private student loan default right away. Here’s what to do:

1. Request help with your private student loan repayment

If you can’t keep up with your private student loan payments, don’t ignore the problem. Reach out to your loan servicer or loan provider to inquire about repayment options. Some lenders will offer forbearance to help you catch up and avoid a private student loan default. You can also request a new repayment plan via email — here’s a sample letter to get the ball rolling.

2. Refinance the private student loan

If you’re having trouble making your private student loan payments, you may be able to refinance your debt to get a lower monthly payment. However, once the private student loan is delinquent, your credit score will take a hit, making it more difficult for you to secure a new loan.

3. Settle your private student loans in collections

If you have private student loans in default, you might be able to negotiate a settlement of your student debt. Contact your debt collector and ask them how much it would take to settle the debt — it doesn’t hurt to ask.

Note that this method will work best if you have some cash you can offer right away as leverage in your negotiations.

4. Know your rights as a borrower

As a borrower, you still have certain rights — even if you’re in 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 to do so. The Consumer Financial Protection Bureau (CFPB) has  sample letters if you need to push back against a collections agency.

Also be aware that the statute of limitations in your state could shield you from 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 will 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 validation, compare the information with your records.

If there is a mismatch, you might be able to prove that the debt is not valid, that you owe less than the creditor claims, or that 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 may be able to 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 a necessity if you’re being sued over the private student loan default.

Private student loan default is serious — but solvable

The consequences of defaulting on a private student loan can be serious. However, there are many options to help you avoid harsh repercussions.

Work with your lender to explore repayment options to keep your loans current. And if you do end up with a private student loan default, always remember that you have rights. Review your legal protections and assert them as necessary.


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