Individual financial institutions make private student loans rather than the federal government.
Government loans are also known as “public loans” at times. Students who are unable to meet their entire tuition bill using public loans will occasionally take out private loans to make up the difference. These loans frequently feature higher interest rates, harsher repayment restrictions, fewer deferral possibilities, and stricter default guidelines than federal government loans.
If payments are not made in full for a set period of time, the balance of a private loan may become delinquent. A default on a private student loan can cause the borrower major credit and financial consequences. If the lender or a collection agency engaged by the lender seeks and obtains a judgment against the borrower, the lender has numerous financial options.
The borrower’s assets and bank accounts may be frozen, and earnings may be garnished to reclaim lost funds.
Private student loans frequently fail after three missed monthly payments (90 days). If you declare bankruptcy, default on another debt, or die, you can also default on a private student loan.
Private lenders may seek to collect your loan personally or engage collection agencies. Furthermore, they may take you to court.
If you are concerned about coming into default, you should carefully analyze your private loan documents to understand your rights better. If you have yet to receive a notice from your servicer and believe you are in default, you should contact your servicer immediately to explore repayment options and see if you can avoid default.
TIP: If you are concerned about your ability to repay your private student loan, contact your lender or servicer as soon as possible. You can work out a repayment plan with your lender or settle your debt in another way.
What Can I Do if a Debt Collector Calls Me About My Student Loans?
A debt collector may be attempting to contact you because a creditor feels you are behind on debt payments. When dealing with debt collectors, you have rights, and it is illegal for a collector to harass you or make false representations.
Ignoring or avoiding a debt collector is unlikely to stop the debt collector from contacting you, and it does not prevent the debt collector from collecting the debt from you if you owe it. You should notify the debt collector if you believe you do not owe the debt.
The Consumer Financial Protection Bureau (CFPB) has created sample letters that you can use to respond to a debt collector attempting to collect a debt and instructions on how to utilize them. The sample letters may assist you in obtaining information, establishing ground rules for future communication, or protecting some of your rights.
Student Loans from Private Sources
There are no typical methods for dealing with a collection agency on a private student loan other than paying what is owed if you have private student loans. You may, however, be able to negotiate or set up a payment plan.
Private student loan debtors in default should be aware of significant variations between federal and private student loans. A debt collector trying to collect on behalf of the US Department of Education or any other arm of the federal government does not work for, represent, or collect on behalf of the federal government.
A debt collector attempting to collect payments on a private student loan may not:
- Garnish your salary without a court order.
- Intercept your federal or state tax refund.
- Garnish your Social Security or Social Security disability benefits.
- Prevent you from obtaining future federal student aid.
Student Loans from the Government
If you have federal student loans, you may have more alternatives when dealing with a federal student loan collector: Rehabilitation. If you make a series of consecutive (usually nine) on-time, acceptable, and affordable payments, your loan will be brought out of default.
A loan can usually only be rehabilitated once. This is the only option to remove the default notation from your credit report. The negative information on your credit history from missed payments previous to default is not removed by rehabilitation.
If you decide to return to school, you will be eligible for federal student aid after making the sixth of nine monthly payments.
Repayment is the quickest way to settle your debt if you can afford to pay off your default federal loan. Your debt collector may be entitled to waive some of your outstanding fees and other collection costs under certain circumstances. This may be the most cost-effective approach to get a federal student loan out of default for certain debtors.
The debt will remain on your credit report as a repaid defaulted loan even after you’ve paid it off. If you decide to return to school, you will also be eligible for federal student funding.
When you consolidate, your defaulted loans are paid off by a new loan with new repayment terms.
Suppose you are unable to repay your loan in full. In that case, consolidation is the quickest option to get out of default and into one of the US Department of Education’s alternative payment plans. If you can’t afford to pay off your loan in full, this is the quickest option to get out of default and resume receiving federal student aid.
Consolidation will not reverse the bad impact of your default on your credit report.
When communicating with a collector, ensure you have written proof of how much federal student debt you owe. If you’re concerned that you never borrowed these loans, go to the Federal Student Aid website of the United States Department of Education. You can find information about your federal student loans on this page.
Call the collector and explain the situation if the loan does not appear. Remember, that system only displays federal student debts, not private student loans.
If a debt collector refuses to offer you an alternative for which you believe you are eligible, request a meeting with the debt collector’s Special Assistance Unit.
What Are My Bankruptcy Options?
There are two sorts of bankruptcies. One option is liquidation, in which the person declaring bankruptcy surrenders all potential assets to fulfill his debts, and all outstanding debts are discharged. This is referred to as Chapter 7 bankruptcy.
Reorganization is the other type of bankruptcy. This allows the debtor some time without being penalized for nonpayment to get back on track financially. The most prevalent type of reorganization bankruptcy is Chapter 13.
What are Borrowers’ Available Defenses?
Student loan obligations are not usually dischargeable in bankruptcy proceedings. This is true for both private and public student loans.
Student loans are particularly immune from Chapter 13 proceedings under USC 523(a)(8). Previously, student debts may be canceled after a certain period, but this has been changed such that student loan debt is the borrower’s burden for life or until the loan is paid off.
The sole conceivable defense to the problem of enormous private student loan debt is undue hardship, which occurs when the debtor claims that repaying their loans would be too difficult owing to physical or other constraints that prevent them from earning enough to repay the loan.
These defenses are rarely effective. The court considers the debtor’s total financial situation and does not frequently rule in favor of the debtor, generally deciding that the debtor is capable of repaying the debts.
A partial discharge is sometimes granted, but the debtor must still repay the remainder of their private student loans to the lender or collection agency that acquired the debt during default.
Do I Need an Attorney?
During any bankruptcy case, it is recommended that you contact a finance lawyer in your area. A competent lawyer can inform you of your best options throughout the bankruptcy procedure.
