Private Student Loan Default

Puzzle and Maze
  • Private student loans can be discharged in bankruptcy under narrow circumstances.
  • Private student loan creditors must use the court system to get a garnishment.
  • 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.

Wise Advice 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 resource Student Loan Bankruptcy for more about this subject.)

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

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

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

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Comments (259)

Michael R.
April 08, 2014
Hello, I took out student loan in 2006 and been in deferment ever since. Taking class to defer my private student loan. I got a notice today that S. Mae said that my loan is no longer able to be deferred. I was wondering can they file suit against me? Other words everyone is saying SOL but does that state also applies to 8 years of deferment?
April 08, 2014
A deferment resets the statute of limitations clock. Let me illustrate this with made-up facts:

Let's say for the sake of argument you took out a loan where the payments were supposed to start on May 1, 2010, but you and Sallie Mae agree to a deferment until July 1, 2014. The statute of limitations clock starts July 1, 2014, and not back in 2010.

You mentioned you are taking a class with the intention of deferring your loan. Review your loan contract and the deferment contract to learn if you can extend the deferral period by taking a class.
Alford E.
Chicago, IL  |  March 30, 2014
I have a question, can you sue the lender before they try to claim a judgement against you. Now I live in Chicago I went to the new school in New York and took out private student loans without a cosigner, I am unsure of which statutes of limitations apply. My loans has been charged off and was in default back in 2012 so I'm unsure which laws applies
March 31, 2014
Exactly which state's SOL laws apply depends on the language in your loan agreement. If you defaulted on your loan in 2012, the SOL would not have passed for a written contract in either New York or Illinois.

I don't understand on what grounds you wish to sue the lender. If you meet with a lawyer who says you have grounds for a lawsuit, you can certainly file before they do.
Kiki D.
Orlando, FL  |  March 27, 2014
I have a private student loan that started out at $36,000 which is now at $55,000 of which the last payment i made was in 2011. I have been stressing about wage garnishments and such so I decided to call Sallie Mae, who then transfered me to NES. NES tried to get me to pay a large sum to settle the account but of course I don't have that amount of money. I agreed to pay $500.00 and then a monthly payment of $150.00. Which at that rate will take me about 30+ years to pay off. My boyfriend says I never should have called them because now I have reset my statutes of limitations. I have checked the SOL for Fl and find that its four years. Should I reneged on my payment agreement or is it too late? I have nothing in writing from them of this agreement and my payment is schedule to come out the 31st of March. Not sure what to do.
March 27, 2014
Unless your boyfriend is a lawyer licensed in your state of residence, I think his analysis of your discussion with the private lender is incorrect.

A borrower and lender negotiating a settlement to a delinquent debt does not reset a statute of limitations. In most states, signing a written reinstatement or making a payment resets the statute of limitations clock back to zero.

Did you send the lender a written statement stating your agreement with what you discussed on the telephone? Did you authorize a voluntary payment? If your answers are no, then you almost certainly did not reset your statute of limitations clock.

You mentioned Florida, and your last payment occurred in 2011. Under Florida Title VIII 95.11 (2)(b), the statute of limitations for written contracts is 5 years. This means the clock on this debt expires some time in 2016. It would be helpful to know exactly when in 2011 you made your last payment.

What to do? Negotiate a payment plan you can afford. Cancel any access to your financial accounts you granted NES if you made a bad deal.
Ray T.
Cincinnati, OH  |  March 24, 2014
Hi. I have nearly $100k in private student loans through KeyBank. My last payment was in August 2012, and it was sent to collections in early 2013. The amount owed is spread out through 5 different loans, therefore creating 5 separate collections. I have been avoiding paying thus far, hoping to try to eliminate the rest of my debt first. My questions is how long until they eventually try to take me to court? Is it better to contact them and start paying monthly? They offered a 80% settlement, but if I had that I wouldn't be in default in the first place. One option I thought of was to see if I can negotiate a lower settlement for the lowest 2 loans, and then work out a payment plan for the rest. Is that a smart idea? Would it be smarter to keep avoiding them until I am ready, or to contact them now to work things out? I am afraid that if I contact them now, they will then make note that I know about the collection attempts and come after me harder. Any advice? I have about 10k saved up that I could use for a settlement now. In a year, I could have more and would have wiped out the rest of my debt so I could pay more monthly. Thanks in advance for any advice as this has been a painful and embarrassing process.
March 27, 2014
There is more we do not know about settling private student loan than we do. Our advice?

Keep an eye on your state's statute of limitations for these debts.

Your idea of holding out for a long as possible is a good one. Generally, the longer you wait the better the deal.

If you are sued, swing into action immediately to make an out of court settlement. Hire a lawyer to help if you are sued.
Marlen B.
San Rafael, CA  |  March 20, 2014
I have 2 loans with Chase Student Loans which have recently gone into default. I tried working out a payment plan with them but they refused all options other than "Pay the $6k & 2k [respectively] in full by the end of the month." I'm currently working retail and trying to pay off my other Chase loans as well as a few with Sallie Mae. Paying in full is not an option for me. I'm trying to find help so I can get myself back on my feet without destroying my credit or my father's--who is my cosigner. Asking daddy for advise is out of the question; he supports my mother and younger sister. Any advice?
March 27, 2014
We don't have anything especially insightful or helpful to offer. The Chase negotiator can continue to insist you pay them money you do not have. Or perhaps with persistence and evidence of your income and assets, you can wear Chase down enough to accept a payment plan that's reasonable for you.
Ta S.
Buffalo, MO  |  March 06, 2014
I have 4 private student loans from 2004-2007. I received a 1099 c on one of them a couple of years ago, but the other 3 re in default and have been for several years. I occasionally get a letter from creditors but they have ll been sent to multiple creditors. I received a notice on the biggest one in November of last year and I immediately validated my debt. I actually received a copy of the signed promissory note back from them and a letter stating this would be the last contact before filing suite, The other two I believe are held by NCO financial. I need help in figuring out what to do. I would like to start making payments on these but I do not have the money for a huge payment or a lump sum settlement. What are my options? I am worried about where this will go. My mother in law is a co-signer on the loan and she will be on full social security in May. I really want to own up to my responsibilities, but I have stuck my head in the sand for a long time on this,
March 10, 2014
Put the four delinquent private student loans into two categories: pay and don't pay.
  1. Collection agent cannot validate debt: Under the FDCPA a debt that cannot be validated cannot be collected. Do not pay debts that cannot be validated. Generally, the older the account the less chance the collection agent will validate the debt.
  2. Statute of limitations clock ran out: A collection agent or original creditor may file a lawsuit against you on time-barred debt. If so, consult with a lawyer immediately and file an answer with the court that raises the statute of limitations defense. If you file an statute of limitations defense in a timely manner, a court will dismiss the case. For this reason, you have no legal obligation to pay a time-barred debt.

If the collection agent validates the debt and the statute of limitations has not run out, then put that debt in the negotiate pile.

Justine Y.
W. Peabody, MA  |  February 07, 2014
I am 26 years old, and a mother of an 11-month old son, and have approximately $260,000 in student loan debt. I have 2 Bachelor degrees, I am currently working 2 part-time jobs, yet I am unable to find a nursing job which my most recent degree was for. All of my federal loans do not have to be paid because of an IBR plan, and my Sallie Mae loans I have currently used a forbearance on. My Chase student loan, which s about $52K has gone into default. I called Chase yesterday and was told that I only had two options: 1. I pay the $52K in full or 2. I pay $31K and then $500/month until the debt is paid off. Neither of these options are realistic for me, and I was told that if something was not set up within a week, the bank would take action on beginning from the day I called. I was also told that they could not disclose to me what the bank may do. I can barely make bills as it is, and have no clue what to do in this situation. Advice is greatly needed and would be greatly appreciated.
February 10, 2014
Consult with a lawyer in your state of residence who has bankruptcy experience. You may not be able to discharge the student loan debt in bankruptcy, but you may be able to use a chapter 13 to set court-ordered payments you can afford.
Huong N.
Westminster, CA  |  February 03, 2014
Hi. I took out a private student loan in 2007 and made good payments on it til 2009. It then went to collections because I didn't make any payments for several months, mercantile solutions was the collection agency working behalf of RBS citizens. We worked out a payment plan of $50 a month, and it suppose to be drafted out of my checking account on the 10th of each month. I never missed one single payment for over 3 years, then I realize I received a letter from another collection agency who is working on behalf of Rbs citizens, claiming I missed two payments. I found that true after I checked my checking account cause they didn't draft anything out December and January. Any how they want to settle for $16,000. Or arrange a payment plan of $50 again. Although paying $50 a month will keep them away from me, but my loan is ballooning. It was originally 22,000. Now it's 27,000. If I let it go and they sue me can I use SoL in California defense? This loan originally defaulted in 2009.
February 03, 2014
The payments you've been making on the loan mean that you can't use the SOL as a defense. Those payments reset the date for the SOL on the debt. Separately, it did not reset the date for how long the derogatory account can remain on your credit report, which runs 7 years from the date of first default.

It is unfortunate, but it makes sense that the balance keeps going up, when you consider that payments of $50/month don't cover the interest that is accruing.
Nikki T.
Las Vegas, NV  |  January 17, 2014
I got a call yesterday from NCO Financial Debt Collection Agency stating that I owed them ~$13,000 from a private student loan taken out in August 2005 and that it was in default as of July 2009. My parents cosigned this loan and were paying on it monthly until they filed for bankruptcy in late 2009 or early 2010. The last date of activity on this account is January 2010, exactly 4 years ago, according to my credit report. I never received any official paperwork and this has never been in the "default" or "collections" section of my credit report. The NCO Financial rep said they have been contacting me for years; but she called me on my most current phone number for the past 5+ years. Is this for real? Also, can the statute of limitations be used in this case? Thanks.
January 23, 2014
I believe that the attempt to collect the debt is real, as you don't dispute that the loan existed and was not paid on. Yes, a statute of limitations defense could be employed, if the debt were indeed past the SOL.
Smithfield, VA  |  January 09, 2014
I just found out my private loan went into default. A little over 180-days past due. Is there anything I can do to reverse this and prevent the massive headache?
January 09, 2014
What did the student loan servicer, the company you make your payments to, tell you when you called them about this matter?
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