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- 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.
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.
See the following Bills.com resources to learn more about resolving student loan debt and avoiding private student loan default:
- Default on Federal Student Loan: What happens when a federal student loan goes into default status, how a borrower can avoid default, and the steps a borrower can take to remove him or herself from default status.
- Student Loan Payment: Learn ideas for resolving federal and private student loans.
- Student Loan Disability: What qualifies for, and how to apply for a disability discharge.
- Federal Student Loan Tuition Waiver: How to contact the Dept. of Education to apply for student loan cancellation.
- Public Service Loan Forgiveness: You can have for your federal loan forgiven if you work in public service.
- Student Loans: Learn more about public and private student loans.