Private student loans don’t have to offer the same borrower protections and repayment options as federal student loans. Unfortunately, this means these borrowers face a greater risk of private student loan default.
Additionally, the process for dealing with defaulted private student loans is very different than with federal student loan default. It can also be just as confusing to navigate.
If you’re in private student loan default, however, timing is everything. Therefore, acting quickly is crucial to minimizing damage to your credit. Plus, you’ll protect yourself from the worst consequences, such as wage garnishment.
Here’s what you need to know (and do) to get defaulted private student loans under control.
What can trigger a private student loan default?
First, private student loan holders should understand how they might end up in default. Reviewing your contract will help you understand when your lender will consider your loan in default — and help you avoid those circumstances.
Remember, each private student loan might have different default triggers outlined in the loan contract. Here are some common events that can trigger a private student loan default.
1. You miss payments
Default are most often a result of non-payment. Usually, the loan will default when it’s overdue for 120 days, or three months.
However, some lenders will consider a loan defaulted on the first missed student loan payment. That’s why it’s important to check your loan agreement to see how long you have from the first missed payment until the loan defaults.
2. Cosigner enters bankruptcy or dies
Most borrowers need decent credit to get private student loans. But if a borrower’s credit is only so-so, they can rely on cosigners to originate a loan. The lender views the cosigner as equally responsible for the student debt.
Thus, certain changes in a cosigner’s status can trigger a private student loan default, even if you’re making every payment on time, according to a CFPB report. These auto-defaults happen most often when a cosigner dies or enters bankruptcy.
3. You file for bankruptcy or default on another loan
A private student loan might also auto-default if your credit status or history dramatically changes. For instance, if you enter bankruptcy or default on another loan, your lender may put your loan in default.
Borrowers preparing to file for bankruptcy or having trouble keeping up with other debts should check the rules for default. Look at your private student loan contract to understand how this situation will affect your student debt.
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 usually unfolds when you default on private student loans.
1. Your full student loan balance will be immediately due.
Once you default, your original repayment schedule and agreement will be void. Your lender will then demand full payment of your remaining student loan balance. They will usually start the collections process or sell your debt to a collections agency.
2. The default will go on your credit.
The lender will likely report the default to credit bureaus.
They will also add it to your and your cosigner’s credit histories. It will be listed there for seven years and significantly damage your ability to get credit during that time. You’ll also have to rebuild your credit after student loan default.
3. Your defaulted private student loan could get sent to collections.
During the collections process, your debtor will contact you and any cosigner listed to try to get repayment for this debt. Expect a lot of debt collection calls and mail notifications.
4. You might face hefty collections fees.
Collection fees might be assessed and added to your debt after a student loan default. These are set by your private student loan contract or state law.
5. The debtor can sue you over the defaulted loan.
If the initial efforts to collect on a defaulted private student loan are unsuccessful, a debtor will probably continue to pursue you (and your student loan cosigner, if you have one) for repayment.
However, private lenders or debt collectors have to get a court judgment to get access to your money. This requires the debtor to sue you over the loan. During this process, they must prove the legitimacy of the debt and their right to pursue you for payment.
The creditor is more likely to sue and seek a judgment if it determines you have the money to pay but simply won’t. On the other hand, if it’s apparent that you lack the funds to pay even if they sued, many lenders won’t bother.
6. Your wages could be garnished.
If the debtor is successful in its lawsuit and the court files a judgment against you, the lender will have the right to take action beyond calling and sending letters. Specifically, the debtor can try to get at your money.
The court’s judgment will include a determination of exactly how much you owe and will allow the creditor to seize assets to settle it. The debtor might do so by:
- Garnishing your wages (up to 25 percent of your net pay)
- Seizing assets like a bank account
6 options for handling defaulted student loans
The above consequences can result from a private student loan default. But you won’t go straight from missed payment to garnished wages. There are several options you can access along the way to handle your defaulted private student loan.
1. Request student loan repayment assistance
If you’re having trouble keeping up with loan payments or have already missed one, don’t ignore the problem. Reach out to your lender and inquire about your options.
Some private student lenders will offer forbearance or temporarily adjust payments to allow you to catch up. If your debt is in collections, you might be able to work out a new payment plan with the collector.
There’s no guarantee the lender will grant your request, but it’s worth a shot. The only way to know for sure is to contact your student loan servicer or collector and request repayment assistance. You can use this sample letter to get a response quickly and work toward resolving this debt.
2. Refinance the private student loan
Another option is to pay off the student loan in full. If you have the cash on hand to do so, you can use that. But if you’re in default, you probably won’t be able to repay the debt in full.
Another option might be to refinance the student loan. You’ll get a new loan that you can use to repay the defaulted private student loan.
With a default on your credit, it’s unlikely that you’ll be able to qualify for a student loan refinance by yourself. See if you can find someone with good credit who’s willing to be your cosigner for a refinanced student loan.
Or, you can try to get a loan from family or friends to repay or settle your defaulted loan. While this might be easier to get, this option can put your relationship at risk, so tread carefully.
3. Settle your private student loan debt
If your debt is in collections but has no judgment on it, another option might be to settle your student debt. Usually, you do this by speaking with the collector and negotiating a lump sum payment for a portion of your debt.
Contact your debt collector and ask them how much it would take to settle the debt. Try to get them to name a figure first, and don’t be afraid to try to talk them down further.
This will work best if you have some savings or cash you can offer now as leverage in your negotiations. It can also be effective if you have a friend or family member willing to give you a personal loan for this debt once you reach a settlement.
4. Know your rights as a borrower
As a borrower, you still have certain rights — even if you’re in default. Research those rights and don’t be afraid to enforce them.
Remember, it’s illegal for a debt collector to use unfair, deceptive, or abusive debt collection tactics. They also can’t collect a private student loan that’s passed the statute of limitations for debts in your state.
For instance, debt collectors are not allowed to call you before 8 a.m. or after 9 p.m. And if you tell them not to contact you at work, it is illegal for them to continue to do so.
Debt collectors also cannot harass you. If you want to limit how and when your debt collectors contact you, the CFPB offers a few form letters you can use to make these requests.
5. Dispute the debt and request verification
It can also be worthwhile to try to dispute your private student debt.
Under the law, a debt collector has to provide you with certain information that proves you are, in fact, legally obligated to pay the debt. But you will usually have to request full proof of the loan’s origins.
You’ll need to take this action right away. You have 30 days from initial communication or discover of the debt to request verification that the debt is legitimate. Disputing the debt in this time frame will put collections on hold.
You can still dispute it after those 30 days, but the lender won’t have the same responsibility to stop collections or verify the debt.
Don’t forget to write and request verification of the debt. In fact, the CFPB provides form letters to dispute a debt or request more information. The creditor should always send you verification of the debt.
Compare this information to 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’re facing a defaulted private student loan, a student loan lawyer can help. Student loan lawyers can help you identify your options and work toward getting out of default. They can determine your actual liabilities for this debt, as well as how state laws could affect it.
Hiring a student loan lawyer might become more of a necessity if you’re being sued over the defaulted private student loan. An attorney can also help you dispute a private student loan you believe to be invalid, negotiate a debt settlement, or deal with debt collectors that are illegally contacting you.
Private student loan default is serious – but solvable
The bottom line when it comes to defaulted private student loans is that you just won’t have the same protections and options that you would with federal student loans. But that doesn’t mean you don’t have options.
If you get into a tough spot with private student debt, work quickly with your lender to resolve it. And should you default, know your rights and spend some time figuring out the best option for you. With some work, you can get past a private student loan default and start rebuilding your finances.
Interested in refinancing student loans?
Here are the top 6 lenders of 2018!| Lender | Variable APR | Eligible Degrees | |
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| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Earnest. Earnest DisclosuresTo qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application. Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility. Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product. © 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America. 2 Important Disclosures for Laurel Road. Laurel Road DisclosuresAPR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change. Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68. However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account. 3 Important Disclosures for SoFi. SoFi Disclosures
4 Important Disclosures for LendKey. LendKey DisclosuresRefinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution. 5 Important Disclosures for CommonBond. CommonBond DisclosuresOffered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018. 6 Important Disclosures for Citizens Bank. Citizens Bank Disclosures
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 | 2.47% – 6.99%3 | Undergrad & Graduate | |
 | 2.46% – 6.97%1 | Undergrad & Graduate | |
 | 2.57% – 8.44%4 | Undergrad & Graduate | |
 | 3.05% – 6.47%2 | Undergrad & Graduate | |
 | 2.50% – 7.24%5 | Undergrad & Graduate | |
 | 2.79% – 8.39%6 | Undergrad & Graduate | |