Facing Private Student Loan Default? Here Are Your Options

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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.

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1 Important Disclosures for Earnest.

Earnest Disclosures

To 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 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% 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 Disclosures

Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.

Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.

Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.

Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance:Fixed rates from 3.899% APR to 7.804% APR (with AutoPay). Variable rates from 2.470% APR to 6.990% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.470% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.64% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing 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 Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of October 1, 2018, the one-month LIBOR rate is 2.22%. Variable interest rates range from 2.72%-8.32% (2.72%-8.32% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled. Applicants with an Associate’s degree or with no degree must have made at least 12 qualifying payments after leaving school. Qualifying payments are the most recent on time and consecutive payments of principal and interest on the loans being refinanced. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a cosigner who is a U.S. citizen or permanent resident. The cosigner (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a cosigner will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.47% – 6.99%3Undergrad
& Graduate
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2.47% – 5.87%1Undergrad
& Graduate
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2.47% – 8.03%4Undergrad
& Graduate
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2.95% – 6.37%2Undergrad
& Graduate
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2.48% – 6.25%5Undergrad
& Graduate
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2.72% – 8.32%6Undergrad
& Graduate
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.