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Private Student Loan Default

Puzzle and Maze
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.

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.

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

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.

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

Comments (190)


Justin B.
Colorado Springs, CO  |  February 08, 2012
I have a friend who is a veterinarian and has $250K worth of private student loan debt in Colorado. What are the options for renegotiating a $4K a month payment that is crippling? What are the consequences for defaulting?
Bills.com
February 08, 2012
I see three options:
  1. Contact the lender to learn what, if any, payment plans or options the lender offers.
  2. Consult with a lawyer about a chapter 13 bankruptcy. This will not cancel the debt, but may result in a payment plan for 5 years that the borrower can afford.
  3. Continue to repay the loans as agreed.

You asked about consequences. See the Bills.com resource Collections Advice to learn more about wage garnishment, account levy, and lien law.

Anthony U.
Indian Trail, NC  |  February 06, 2012
I just received a call from National Recoveries about a student loan that was taken out over 20years ago. There is nothing showing my credit report, actually this is the first I have heard of this loan. The student loan is a Guaranteed Student loan with Fleet Bank being the original issuer. NRI states that the US Dept of Ed is the creditor now. My question is if this is a private student loan or a federal student loan since it was issued by a private bank.
Bills.com
February 06, 2012
Prior to xxx private banks issued and serviced federal student loans. I recommend that you go the the Dept of Education's contact page to find out more information. National Recoveries is one of the collection agencies working with the Dept. of Education.
Elizabeth S.
Freeport, PA  |  February 03, 2012
Hi! I have private student loans through Sallie Mae and though I'm not getting any threatening calls from collection agencies and debt collection lawers, Sallie Mae is calling not only me but my in-laws, my mom, and my dad looking to speak with me. The harassing phone calls are becoming a burden and I am quickly running out of forbearance allowances through Sallie Mae. I live in PA and have tried repeatedly to work with Sallie Mae and get them to accept the fact that I can only afford a monthly payment of $150.00 maximum (instead of the $800.00 monthly paymet), and they keep telling me that there is nothing they can do. I read on other websites about getting my loans discharged through bankrupty because present loan payment amounts are undoubtedly causing undue hardships. Is it truly possible that I can get my private loans discharged or even reduced to $150.00 a month over a 30-year period? If so, what steps do I need to take? I would like to get this taken care of as soon as possible. Thanks so much!
Bills.com
February 04, 2012
Consult with a bankruptcy lawyer to learn if you qualify for a hardship discharge of your student loan. See the Bills.com resource Discharge a Student Loan for a discussion of this issue. Ask any follow-up questions on that page.
Marcia W.
Los Angeles, CA  |  February 02, 2012
Help! I have defaulted on a private parent plus loan (i am the student), and while I have looked for gainful employment I have only been able to find temporary work. My main concern is that they may garnish my mother's wages. I spoke to the supervisor of the National Recovery Group for my lender but he was aggressive and told me he had already made the decision to not offer me a payment plan even before I asked for one. He told me that he personally wrote the "settlement opportunity" letters that are mailed out and he is the one calling all of the shots now. My debt is for $16,609. It's been defaulted for a year. What can I do to salvage my mother's credit and repay this loan? I would not like to have to put up with someone's terrible attitude and unwillingness to assist me. The supervisor has threatened to pursue further legal action within the next two days if I do not reply. Thank you in advance
Bills.com
February 03, 2012
Readers, how have you resolved situations like Marcia's with National Recovery Group?
Larry J.
Miami, FL  |  January 28, 2012
HI- I have a 10 year old loan through Sallie Mae. The educational program (Microsoft Systems Engineer)that i enrolled to study in was cancelled 6 weeks into the program by the university. They offered another program but I was not able to attend due to my work schedule. The only reason I enrolled in the program was because of the scheduling of the courses with my work life. I did not receive a degree. After 10 years i have a collector now calling me and demanding repayment for a loan on a colle program that i never received education for because the school cancelled the program. Do I have to repay back this loan? If not how should i proceed with this legally? Thank Larry
Bills.com
January 29, 2012
The first steps that you should take are:
  • Validate the debt with the collection agency
  • Determine the exact type of loan that you took
    • Sallie Mae originated and serviced both federal and private student loans. If the loan was a federal student loan, then it is possible that the school should have refunded the funds. Read the Dept of Education's page about Common Disputes Involving Defaulted Student Loans.
Kay M.
Miami, FL  |  January 25, 2012
Hello all, I have 4 private loans, totaling to $31,000 on default. I am going back and forth with the collection agency but all they seem to do is threaten me and tell me that my wages will be garnished and that my property will be in danger if I delay paying. We did try to settle for a lump sum of $12,000, a down payment of $7,000 and for 18 months paying $485. I REALLY cannot afford this at all and what I would like to know is if I do not respond to the collection agency calls, have a lawyer send a cease and desist order, is there a strong chance that Sallie Mae will turn around and take me to court? And if so, if i have a property, is it advisable to remove my name from the title of the property? Also, i am married as well, will Sallie Mae come after my wife's assets? Thank you for the time in reading this.
Bills.com
January 26, 2012
You do not want to reach a settlement that you cannot afford. Explain your situation to the creditor and attempt to negotiate a longer repayment period, that will be affordable. If you do not reach a settlement, then the creditor, Sallie Mae, will most likely seek a court judgment. This could lead to wage garnishments, bank levies, and liens on your personal property. I recommend that you look at the Bills.com page about collection laws. If there were co-signers on the loan, they will be at risk too. As regards your wife's liability, that would depend on the state you live in and laws regarding community property. Before you change title on property, I recommend that you speak with a lawyer.
Matthew L.
Herndon, VA  |  January 24, 2012
I've been dropped out of school for the past 2 years and have been unemployed on and off throughout that period. At least one of my private loans through Sallie Mae has defaulted and I'm getting the frequent phone calls on a daily basis and such. I re-enrolled back into school yesterday and called Sallie Mae to make them aware of this and they said regardless of my student status they are sending my account to collections if I don't pay up. I was under the impression from my financial adviser at school that since I've re-enrolled, my loan payments will be deferred until I graduate or am no longer in school. Can Sallie Mae still take legal action on me?
Bills.com
January 25, 2012
I am not familiar with a blanket rule that allows a loan deferment on a private student loan due to re-enrollment. Read the loan contract to see if a clause allows or requires deferment. Sallie Mae can attempt to collect on the loan by obtaining a court judgment. If you are sued, consult with a lawyer immediately.
Jerry P.
San Diego, CA  |  January 24, 2012
Hello, I recently discovered an old Sallie Mae private student loan from about 10 years ago that was charged off over 4 years ago and does not appear on my credit report. It reappeared after Citi sold or transferred a separate loan to Sallie Mae. when i logged in to make a payment, the old Sallie Mae loan appeared along with the Citi loan past due for 999 days and full amount due of over 6k. I recently received a letter from the collection agency for this old loan offering a settlement. I have the funds to pay however I am afraid it will re-appear on my credit report. Is it worth paying an old debt that has passed the California Statute of limitations? If I pay it will it re-appear on my credit report, if so is there any way around this? I'm not so concerned with the cash as I am with the my FICO score.
Bills.com
January 25, 2012
The 7½-year clock for delinquent debt appearing on a credit report starts at the date of first delinquency, and not any other date. Unscrupulous collection agents will re-age a debt but without the consumer's permission to do so, this is a violation of the FCRA.

You mentioned California. Read the Bills.com resource California Statute of Limitations for a discussion of what the California statute of limitations for debt means and does not mean to you.

You did not ask about this issue, but you may want to consider negotiating a lump-sum settlement for less than the balance due.
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