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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:

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Comments (196)


Tammy G.
Houston, TX  |  February 26, 2012
Unfortunately, I have to file Chapter 7 this month. I went through a divorce, lost my job and then back to court on child custody issues. I have a $11,000 private loan- (Teri). That I have defaulted on. I received a collections letter in mid Jan. and I noticed on my credit report today- that on this loan it states -- Claim filed with government -- and also states --- Transferred to recovery. I was going to file my taxes this week and I have a refund. But I am afraid to file because I may lose my refund to the defaulted private education loan. Also on my account with AES it states the loan status is -- CLAIM PAID -- not sure what that means... Should I wait to file my taxes? Thanks for your help.
Bills.com
February 26, 2012
A TERI loan is a private student loan. Private student loan lenders do not have access to your tax return. Still, I think you should speak with your bankruptcy attorney, to see if he or she advises you to file your return before you file for bankruptcy or during.
Jimi J.
New York, NY  |  February 14, 2012
I am in the market for an apartment and I have some money saved up for the first month's rent, deposit and moving expenses ect. I have both US dept. of ed loans & a sallie mae loan in default and am about to start paying them to get back on track but was worried that they can take (place a lien) the money out of my account that I desperately need to move out of a bad roommate situation. Do you think it would be wise to empty my account just in case this can happen?
Bills.com
February 14, 2012
Under the motto "better safe than sorry," take the money out of your account. This will protect you against a worst case scenario.
Kayla H.
Dickson, TN  |  February 14, 2012
Hi, i am really confused, i have a large student loan threw chase bank. I had to drop out of school over a year ago and am just now finding a good job where i could afford to make payments too them. My parents were the cosigner on the loan an they ended up filing bankruptcy and this loan was put on the bankruptcy i have forms showing where they have been getting a small percentage each month. An i have not received any notices about the loan being defaulted. Still Saturday when i tried to call and change my address threw chase student loans, they told me that my loan has been sent to National recover, what does this mean im really scared they are gonna start garnishing wages.
Bills.com
February 14, 2012
Your first step is to determine how much money you owe, what the payment terms are, and how much the arrears are. If you are in default, then the collection agency can seek a court judgment against you which can lead to wage garnishments, bank levies, and liens on your personal property. For more information read the Bills.com article about collection laws. I recommend that you speak with the collection agency in order to reach a settlement regarding your debt.
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.
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