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Private student loans don’t usually come with the same borrower protections and repayment options as federal student loans do. This makes private student loan default a little more likely than defaulting on federal loans. And that default could potentially lead to a lawsuit — yikes!
If you’re at risk of defaulting on your private student loans, timing is everything — you’ll need to act fast to minimize the potential damage to your credit score and avoid harsh consequences.
Here’s what you need to know — and do — if you’re at risk of defaulting on private student loans.
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 other situations 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 generally stays 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 — so it’s best to try this method before you miss payments.
In a pinch, you may be able to ask a relative or friend to borrow money to repay your private student loan. Still, this option can put your relationship at risk, so be sure you tread carefully.
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 some 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. (Here, too, the CFPB has form letters you can use.)
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. If so, consult this list of places to find affordable (or even free) legal help.
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.
Joni Sweet contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% 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 April 17, 2019, 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 04/17/2019. 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 email@example.com, or call 888-601-2801 for more information on our student 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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed 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.
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.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
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.
Offered 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 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|