Facing Private Student Loan Default? Here Are Your Options

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If you’re at risk of private student loan default, you’ll need to act fast to minimize the potential damage to your credit score and avoid harsh consequences — especially since defaulting on private student loans could lead to a lawsuit.

Here’s what you need to know — and do — if you’re at risk of defaulting on private student loans.

What can trigger a private student loan default?
What happens when you default on student loans?
6 options for handling private student loan default
Private student loan default is serious — but solvable

What can trigger a private student loan default?

Each private student loan might have different default triggers outlined in the loan contract. Reviewing your contract will help you understand when your lender will consider your loan in default — and help you avoid those circumstances.

Here are some common events that can trigger a private student loan default.

You miss payments

Defaulting on private student loans is often the result of missed payments, and in some cases, the lender will consider the loan in default after just a single missed payment. Check your loan agreement to see how long you have from the first missed payment until the loan defaults.

Cosigner enters bankruptcy or dies

Some borrowers may add a cosigner to their loan to potentially secure a lower interest rate — but if that cosigner should suffer a bankruptcy, or if they pass away, it could affect your loan. In a few cases, it could even trigger an automatic private student loan default, even if you’re making every payment on time. If something happens to your cosigner, be sure to check for possible ramifications for your loan.

You file for bankruptcy or default on another loan

You may also face private student loan default if your credit status dramatically changes. For instance, if you enter bankruptcy, or default on another loan with that lender, your other debt may be affected.

As with the other situations described above, look at your loan contract to understand how this situation will affect you.

Here’s what happens when you default on private student loans

If your private student loan defaults, you’re probably wondering what comes next. Here’s what may unfold, though note that the situation can vary from lender to lender.

The private student loan delinquency will go on your credit report

If you make late payments, or fail to pay altogether, the lender will report it to the credit bureaus. The negative report may hit your cosigner’s credit as well, and will generally stay on your credit history for seven years, making it more difficult for you to borrow money during that time.

Your lender may put your private student loans in collections

Your lender can send your debt to a collections agency that will likely contact you and any cosigner listed to try to get repayment for your private student loan debt. You may receive a lot of phone calls and letters demanding payment.

You might face hefty collections fees

Collection fees might be added to your debt after a student loan default, thus increasing your total balance.

You may face a lawsuit if you default on your private student loans

If the lender has trouble collecting payment on a private student loan default, it may sue you (and your cosigner) for repayment. If you lose the lawsuit, the court’s judgment could allow the lender to garnish your wages or potentially seize assets like your home, though some states do have protections in certain cases.

If you find yourself in this situation, check out our guide on how to deal with a student loan lawsuit.

6 options for handling private student loan default

Wage garnishment sounds scary, but the good news is that you can potentially avoid that and other harsh consequences by dealing with your private student loan default right away. Here’s what to do:

1. Request help with your private student loan repayment
2. Refinance the private student loan
3. Settle your private student loans in collections
4. Know your rights as a borrower
5. Dispute the debt and request verification
6. Consult a student loan lawyer

1. Request help with your private student loan repayment

If you can’t keep up with your private student loan payments, don’t ignore the problem. Reach out to your loan servicer or loan provider to inquire about repayment options. Some lenders will offer forbearance to help you catch up and avoid a private student loan default. You can also request a new repayment plan via email — here’s a sample letter to get the ball rolling.

2. Refinance the private student loan

If you’re having trouble making your private student loan payments, you may be able to refinance your debt to get a lower monthly payment. However, once the private student loan is delinquent, your credit score will take a hit, making it more difficult for you to secure a new loan — so it’s best to try this method before you miss payments.

In a pinch, you may be able to ask a relative or friend to borrow money to repay your private student loan. Still, this option can put your relationship at risk, so be sure you tread carefully.

3. Settle your private student loans in collections

If you have private student loans in default, you might be able to negotiate a settlement of your student debt. Contact your debt collector and ask them how much it would take to settle the debt — it doesn’t hurt to ask.

Note that this method will work best if you have some cash you can offer right away as leverage in your negotiations.

4. Know your rights as a borrower

As a borrower, you still have certain rights — even if you’re in default. As the Federal Trade Commission notes, it’s illegal for debt collectors to utilize “abusive, unfair or deceptive debt collection tactics.”

For instance, they are not allowed to call you before 8 a.m. or after 9 p.m. without your consent, and if you tell them not to contact you at work, it is illegal for them to continue to do so. The Consumer Financial Protection Bureau (CFPB) has some sample letters if you need to push back against a collections agency.

Also be aware that the statute of limitations in your state could shield you from action against older debt.

5. Dispute the debt and request verification

A debt collector is legally required to provide you with information that proves you are, in fact, obligated to pay the debt.

Usually you will have to request full proof of the loan’s origins, and you have 30 days from the initial communication to request this validation. Once you get the validation, compare the information with your records.

If there is a mismatch, you might be able to prove that the debt is not valid, that you owe less than the creditor claims, or that the debt doesn’t belong to you.

6. Consult a student loan lawyer

If you have a private student loan in collections, a student loan lawyer may be able to help. The attorney can issue a cease-and-desist letter to collections agencies to stop them from contacting you directly. The attorney can also explain any relevant state laws that may protect you.

Hiring a student loan lawyer might become a necessity if you’re being sued over the private student loan default. If so, consult this list of places to find affordable (or even no-cost) legal help.

Private student loan default is serious — but solvable

The consequences of defaulting on a private student loan can be serious. However, there are many options to help you avoid harsh repercussions.

Work with your lender to explore repayment options to keep your loans current. And if you do end up with a private student loan default, always remember that you have rights. Review your legal protections and assert them as necessary.

Rebecca Safier and Joni Sweet contributed to this report.

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& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
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2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.41%5Undergrad
& Graduate

Visit CommonBond

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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective August 10, 2020.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.