A Comprehensive Guide
Defaulting on a private student loan can have serious consequences, including damage to your credit score, collection calls, and even lawsuits. However, there are options available to help you recover from default. In this article, we’ll explore the consequences of default, the options available to help you recover, and provide tips on how to prevent future default.
Understanding Private Student Loan Default
Defaulting on a private student loan typically occurs after 90 days of missed payments, although some lenders may put your loan into default after just one missed payment . Other events that can trigger default include:
Missed payments: Failing to make payments on your loan for an extended period.
Cosigner issues: If your cosigner enters bankruptcy, dies, or defaults on another loan with the same lender.
False certification: If you or your school falsely certified your eligibility for the loan.
Identity theft: If someone steals your identity and takes out a loan in your name.
Consequences of Default
If you default on a private student loan, you can expect:
Damage to your credit report: Missed payments will be reported to the credit bureaus, negatively affecting your credit score.
Collection calls and letters: Your lender may hire a collection agency to contact you and your cosigner (if applicable) to collect the debt.
Fees and interest accumulation: You may be charged late fees, collection fees, and interest on your outstanding balance.
Legal action: Your lender may sue you to collect the debt, which can result in wage garnishment or asset seizure.
Tax implications: You may be subject to tax penalties and interest on the amount you owe.
Recovery Options
If you’ve defaulted on a private student loan, there are several options to help you recover:
1. Request help with student loan repayment: Reach out to your lender to discuss repayment options, such as forbearance or a payment plan .
2. Refinance the private student loan: You may be able to refinance your loan to get a lower interest rate and monthly payment .
3. Settle your debt in collections: Negotiate with your lender or collection agency to settle your debt for less than the full amount .
4. Consult a student loan lawyer: If you’re struggling to negotiate with your lender or need help understanding your options, consider consulting a student loan lawyer .
5. Consider a debt management plan: You may be able to work with a credit counseling agency to develop a debt management plan.
Forbearance and Deferment
They are temporary solutions that can help you avoid default:
Forbearance: Your lender may grant you a temporary reduction or suspension of payments, usually for a period of 3-12 months.
Deferment: Your lender may grant you a temporary postponement of payments, usually for a period of 3-12 months.
Refinancing and Consolidation
It can help you manage your debt:
Refinancing: You can refinance your private student loan to get a lower interest rate and monthly payment.
Consolidation: You can consolidate multiple private student loans into one loan with a single interest rate and monthly payment.
Settlement and Negotiation
Settling your debt in collections can be a viable option:
Settlement: You can negotiate with your lender or collection agency to settle your debt for less than the full amount.
Negotiation: You can negotiate with your lender or collection agency to reduce your monthly payments or interest rate.
Bankruptcy and Discharge
In some cases, you may be able to discharge your private student loan in bankruptcy:
Chapter 7 bankruptcy: You may be able to discharge your private student loan in Chapter 7 bankruptcy, but this is rare.
Chapter 13 bankruptcy: You may be able to discharge your private student loan in Chapter 13 bankruptcy, but this requires a court-approved repayment plan.
Prevention is Key
To avoid defaulting on your private student loan in the future:
Set up automatic payments: Ensure timely payments by setting up automatic withdrawals from your bank account.
Budget and adjust your income: Create a budget and explore ways to increase your income to ensure you can afford your monthly payments.
Communicate with your lender: Reach out to your lender at the first sign of financial trouble to discuss options for avoiding default.
Consider income-driven repayment plans: If you’re struggling to make payments, consider income-driven repayment plans that can lower your monthly payments.
Private Student Loan Default Statistics
Default rate: The default rate for private student loans is estimated to be around 11.4%.
Default amount: The total amount of private student loans in default is estimated to be around $31.8 billion.
NEXT: Three Small Business Insurance Policies
Private Student Loan Default Consequences
Credit score damage: Defaulting on a private student loan can damage your credit score, making it harder to get credit in the future.
Collection calls and letters: Your lender may hire a collection agency to contact you and your cosigner (if applicable) to collect the debt.
Fees and interest accumulation: You may be charged late fees, collection fees, and interest on your outstanding balance.
Legal action: Your lender may sue you to collect the debt, which can result in wage garnishment or asset seizure.
Private Student Loan Default Resources
– National Foundation for Credit Counseling (NFCC): The NFCC is a non-profit organization that provides financial counseling and education.
– Financial Counseling Association of America (FCAA): The FCAA is a non-profit organization that provides financial counseling and education.
– Student Loan Borrower Assistance Project: This project provides resources and assistance to student loan borrowers.
Private Student Loan Default FAQs
– What happens if I default on a private student loan? If you default on a private student loan, you may face credit score damage, collection calls and letters, fees and interest accumulation, and legal action.
– Can I refinance a defaulted private student loan? Yes, you may be able to refinance a defaulted private student loan, but you may face higher interest rates and fees.
– Can I consolidate a defaulted private student loan? Yes, you may be able to consolidate a defaulted private student loan, but you may face higher interest rates and fees.
Conclusion
Defaulting on a private student loan can have serious consequences, but there are options available to help you recover. By understanding the consequences of default, exploring your recovery options, and taking steps to prevent future default, you can get back on track with your student loan payments.
