How to Get Out of Paying Defaulted Private Student Loans

Neither private nor government student loans are dischargeable in bankruptcy.

Most private student loans offer fewer borrower protections than government-funded student loans. Private student loan lenders follow the same rules and strategies for collections as most other unsecured debts. You are in technical default on your private student loan if you fail to make one or more payments in a timely fashion.

Instructions

1. Understand the collection process. When you default on a student loan, your lender or a collection agency hired by the lender will pursue payment from you. If you fail to make payment arrangements, the creditor may file a lawsuit against you for breach of contract. If the creditor wins a judgment for the amount due, it may ask the court for a wage garnishment order, a levy on your bank accounts or a lien on your property.

2. Communicate with your lender. If you cannot make a payment, it is best to be upfront with your lender. The lender may offer you a reduced payment amount or a deferment of payments for a specified period. Keep a written record of anyone with whom you speak. If you communicate in writing, send letters via certified mail with a return receipt requested.

3. Negotiate a settlement with your creditor. If a temporary payment reduction or suspension is insufficient to rectify your default, your creditor may be willing to renegotiate the terms of your loan. It may offer you a reduced interest rate or extended repayment period. If you are able to pay the entire outstanding balance or make a large lump sum payment, your creditor may also consider settling for less than the full amount.

4. Demand that your creditor cease contact with you. If you are unable to make payment arrangements or negotiate a settlement, you can expect to be contacted frequently by your creditor. The law requires that the debt collector stop contacting you if you make such request in writing. The creditor will then be able to contact you only if they are going to take specific action against you, such as filing a lawsuit.

5. Understand that your defaulted private student loan debt will remain an obligation. While a creditor may only sue for a certain number of years depending on your state’s statute of limitations, it may attempt to collect the debt indefinitely. In addition, both government-funded and private student loans cannot be discharged in bankruptcy.

References

• Student Loan Borrower Assistance: Private Loan Collections
• Bills.com: Default on Private Student Loan
• Bills.com: Private Student Loan Settlement
• Student Loan Borrower Assistance: Default and Delinquency
• AskTheMoneyCoach.com: Is Loan Rehabilitation the Best Solution for a Defaulted Student Loan?
• Legal Aid of Western Missouri: Debt Collection Harassment