If you find yourself in default on with a private student loan, chances are you’re wondering what next?
The main thing you should know is that you don’t have to worry about your wages being garnished or your bank account being levied — at least not until they sue and get a judgment against you. That may take years.
Only the federal government, can garnish your wages, take your tax refund, and offset your Social Security benefits as soon as you default.
With those concerns out the way, let’s talk about private student loan default.
What is Private Student Loan Default
Unlike federal student loans, there’s no universal definition for when a private student loan is in default.
The terms of the loan contract you signed defines when a default occurs.
For many private student loans, you default when you miss a single monthly payment.
This is in contrast to student debt owed to the federal government. A federal student loan defaults after you miss 9 months (270 days) of student loan payments.
Read Full Article: How to Get Federal Student Loans Out of Default
Consequences of Defaulting on Private Student Loans
There are 3 main consequences of defaulting on a private student loan:
- the loan balance accelerates and becomes immediately due in full
- your credit score takes a beating from the late payments and the loan being marked as being in default
- collection calls increase
Another consequence is if you have a cosigner. When you default on the loan, they default on the loan. That means their good credit takes a hit and they start getting collection calls.
Read Full Article: Can Private Student Loans Garnish Your Wage? Yes, But There’s a Catch
Plus, unless you spoke with them before defaulting, your cosigner is likely to be upset with you — and that’s especially true if they had a great credit score and credit history.
Defaulted private student loans have made for many an awkward holiday meal.
Options for Getting Private Student Loans Out of Default
Private lenders don’t offer a loan rehabilitation program to get out of default. Because of that, your options to get a private student loan out of default are to:
- request a forbearance/deferment
- pay the missed monthly payments
- request interest only repayment plan (your payments depend on your loan balance and interest rate)
- pay the loan balance in full or
- attempt to negotiate a settlement
Refinancing likely isn’t an option. Unlike a federal loan consolidation, private student loan refinancing is based on your credit score, income, work history, etc.
Student loan refinancing is an investment opportunity. Banks want to profit from you repaying your student loan debt.
You’ll be hard-pressed to find a bank willing to refinance defaulted student loan debt.
And even if you could find a new lender, the interest rate likely will be ridiculous.
Do Private Student Loans Go Away After 7 Years
Private student loan debt doesn’t necessarily go away after 7 years. It can, however, potentially be removed from your credit report if 7 years have passed since you defaulted. But you’ll continue to owe the student loan debt until you pay it off or the statute of limitations has run, whichever comes first.
What About Private Student Loan Forgiveness
Private student loan doesn’t exist — for the most part.
In my experience, most private lenders don’t offer forgiveness programs because you’re facing financial hardship like unemployment, low wages, etc.
Can a Lawyer Help with Private Student Loan Default
A student loan lawyer can look at your private student loans and your financial situation to help determine your options for getting out of default. Sometimes requesting a forbearance is the best option. Other times getting into an interest-only payment is what’s best. And still other times, negotiating a settlement or attempting to discharge your debt in bankruptcy is the way to go.
Do you need to hire a lawyer to figure out what to do? No. But why mess around when you owe thousands?