Private Student Loan Default

Bills.com Team
Pro

By

Highlights


  • Private student loans can be discharged in bankruptcy under narrow circumstances.
  • Private student loan creditors must use the court system to get a garnishment.
  • Bills.com contains many student loan payment resources.
4.0
/5.0
(14 Votes)

Learn What Steps A Lender Can Take if You Stop Paying a Private Student Loan.

Private student loans are the same as other unsecured debt, such as credit card debt or medical debt, in all ways but one. If you default on a private student loan (or other unsecured debt), the creditor has a cause of action against you for breach of contract. In other words, the lender has the right to sue a borrower who fails to make their private student loan payments as agreed.

If the lender prevails in court and wins a judgment, the lender, now called a judgment-creditor in legal-speak, can ask the court to have the borrower’s (now called the defendant or judgment-debtor) wages be garnished, a levy placed on the borrower’s financial accounts, or a lien attached to the borrower’s property.

Check the Dept. of Education’s National Student Loan Data System (NSLDS) to see if the loan is federal. State statutes of limitations do not apply to federal loans, and are subject to collection indefinitely. Student loans not backed by federal grants or guarantees do not appear in the NSLDS, and are therefore private. Private student loans are subject to state statutes of limitations.

The only thing that separates a private student loan from any other unsecured debt is that private student loans are currently not dischargeable in a bankruptcy filing, unless the debt creates an undue hardship on the petitioner. (See the Bills.com resource Student Loan Bankruptcy for more about this subject.)

For more information on collection actions for default on student loans, see the Bills.com resource Collections Advice to learn more about wage garnishment, account levy, and lien law. See the Bills.com resource State Statutes of Limitations for information about each state’s debt laws.

eed a student loan? See the Bills.com resource Student Loans resource page. Problem with a student loan? Learn more about Student Loan Consolidation.

See the following Bills.com resources to learn more about resolving student loan debt and avoiding private student loan default:

4.0
/5.0
(14 Votes)

219 Comments

Recent Best
1500 characters remaining
  • CG
    Mar, 2013
    Casey
    I have a few questions. I finalized my bankruptcy today and it is complete. (I filed chapter 7) I have been trying to work with these private student loan people for a while now, even while I was going through my bankruptcy, I have been paying $300 a month for just my three private loans, so I don't get garnished. I also have four federal loans that are currently getting consolidated to get them out of default, so I have been paying $250 a month for those. How long do I need to keep paying the private loans before they get out of default? Am I going to have to wait until the interest is paid off before it is in good standing? Luckily, the federal loans are getting taken care of and out of default...they are a lot less forgiving, but am I taking the correct steps right now. Is there anything else I can do to help my situation? I know $550 per month doesn't seem like a lot of money compared to some others having far worse issues, but even $550 is not feasible for me with a kid on the way and being the head of household. Will they renegotiate my rate for my private loan when I have the child? That was an original question to base their payment plan on. Should I give them a shout when the child is born and renegotiate?
    0 Votes

    • BA
      Mar, 2013
      Bill
      One of the problems with private student loans is the private student lenders are not constrained by Dept. of Education rules for consolidation, default, rehabilitation, deferment, and so on. For example, private student lenders may offer deferment and consolidation, or may not. Therefore, it is impossible for someone like me to make a blanket statement about how many payments you need to make before your private student loans are no longer delinquent. You have two ways to learn the answers to your questions about your private student loans:
      • Review your private student loan contract(s)
      • Ask each of your lenders about their policies

      If it seems like the private student lenders are not giving you straight answers to your questions, consult with your bankruptcy lawyer. He or she will read your loan contracts, and will advise you about your rights and liabilities.

      1 Votes

  • BD
    Mar, 2013
    Brittani
    I currently made half of my private student loan to Sallie Mae. I think I can make half payment for a month or two. I will be starting school as a non-degree seeking student where these credits will go towards my graduate degree. I wonder if I can apply for deferment when my course starts April 29. Also will making these payments keep me from defaulting?
    0 Votes

    • BA
      Mar, 2013
      Bill
      I recommend speaking with Sallie Mae and your school's financial aid office directly. It is not clear to me whether your non-degree seeking status could affect obtaining a deferment.

      To answer your second question, making less than your required payment exposes you to default.
      1 Votes

  • PD
    Feb, 2013
    Pam
    I cosigned some private student loans for my son. He also forged my name to a couple of loans. He defaulted on the loans and I started getting phone calls. He then declared bankruptcy (Chapter 13) which included those loans. He also listed me as a creditor. He will not talk to me and I don't know what exactly is going on but I do know the credit collection agency is no longer calling me. If the student loans were included in the bankruptcy, can they come after me for the payment?
    0 Votes

    • BA
      Feb, 2013
      Bill
      Pam, your responsibility for loans on which you were a co-signer are not removed when the other person on the loan removes his responsibility via bankruptcy. (It is very hard to include a student loan in bankruptcy. Have you seen the paperwork that states that the bankruptcy court has removed his obligation to pay? Just because he included them in his filing, does not mean that the court decided to discharge his need to pay.)

      A creditor could come after you for payment, in this case. I recommend that you pull a credit report and see how long it has been since the last payment was made, so you can see when the statute of limitations for debt will apply.
      0 Votes

  • MY
    Dec, 2012
    Masol
    Are you able to receive fasfa student loans if you have a private defaulted loan/ not federal.
    0 Votes

    • BA
      Dec, 2012
      Bill
      To get the most accurate and current information, I contacted the Dept. of Education. Here is what they said.

      A "student may not receive any federal student aid if he or she is in default on any U.S. Department of Education loan. A defaulted nonfederal loan does not automatically prevent a student from receiving aid."

      "Nevertheless, a school may consider a student's credit rating as a factor in determining a borrower's willingness to repay. Therefore, a school may deny a Federal Perkins Loan to a student who has an adverse credit history."

      "A borrower's credit history does not affect his or her eligibility to borrow a Stafford Loan under the William D. Ford Federal Direct Loan (Direct Loan) Program."

      "A graduate or professional-degree student is not eligible to borrow a Direct PLUS Loan if the student is determined, based on criteria established by federal regulations, to have an adverse credit history. (A student with an adverse credit history may still be able to receive the loan: The student either must obtain an endorser with no adverse credit history or document to the U.S. Department of Education's satisfaction that extenuating circumstances exist.)"

      For more information about your status, I recommend that you look at their staying eligible page. Also, check with your financial aid office at your school.
      0 Votes

  • KL
    Oct, 2012
    Kim
    I recently received a letter that my private student loan (Chase) is in default. I am a single mom to one child, who has a part time job and barely makes enough to get by. My uncle who is married and is not currently in a job due to severe illness is the cosigner of my loan. I would like to know if they can go after his & his wife home and bank accounts if I am being sued by the Chase for defaulting on my student loan. i spoke with the person who is on the case of my default loan but he was being very rude while asking him if there is any way I could make smaller monthly payments but he insisted that I have to payoff the loan plus interest in full and I can't afford it. My main concern is will they come after my uncle who is my cosigner and try to take his home, social security and bank account or will they come directly at me if they sue or take me to court. What should I do?
    0 Votes

    • BA
      Oct, 2012
      Bill
      Your uncle assumed full financial responsibility when he co-signed for your loan. He is subject to collection efforts, just as you are, when the loan is in default. If he were sued and judgment were obtained against him, exactly what the creditor could do to collect from him is likely governed by the state collection laws in his state. It is possible, however, that another state's laws would apply, depending on the language in the loan contract.

      In most states, a judgment debtor's bank accounts can be attached, a lien filed against him that affects property he owns, and his wages can be garnished. Social Security income is protected from garnishment for a private student loan debt (but not a federal student loan debt). Though there could be a lien filed that would affect his home, it is highly unlikely that his home would be at risk of seizure to pay the debt.

      I recommend that your uncle consult with an attorney, to see what he faces in a worst-case scenario.
      0 Votes