Discover Student Loan Default: What to Do

#1 Student loan lawyer

Updated on February 16, 2024

As it stands, student loan borrowers are finding themselves in a tight spot with Discover.

The options available to them for easing their monthly payments are slim pickings.

One can only hope to delay their payments briefly through a deferment or forbearance or to snag a lower interest rate for a mere handful of months. But alas, such repayment options are woefully limited and inevitably end. Once that happens, the borrower is left to their own devices, scrambling to cobble together the funds needed to cover their student loan payments. And if they can’t muster up the cash, late payments will rear their ugly heads on their credit reports, blemishing their credit scores in the process.

Should they fall far enough behind, the loans will eventually default, and the real headaches will begin.

Here’s what to know about defaulting on Discover student loans.

Want help negotiating the best settlement offer quickly with the least damage to your credit score? Book a call with me. Over the past decade, I’ve helped hundreds of people across the United States get settlement agreements with lenders like Sallie Mae, Navient, Discover, SoFi, and others.

What happens when you default

Thankfully, private student loan default doesn’t mean you’ll immediately feel the wrath of Discover’s collection tactics.

Your wages won’t be garnished, your Social Security benefits won’t be seized, your bank account won’t be pilfered, nor will a lien be slapped on your humble abode. You and your cosigner can breathe a sigh of relief knowing that your paycheck, home, and retirement are all shielded from being confiscated to repay those pesky defaulted loans.

Until you’re summoned to court.

Before then, Discover or their merry band of debt collectors can only stain your credit history with late payments and incessantly pester you, your loved ones, and your colleagues until you pony up the dough.

As is typical with many private lenders, Discover doesn’t immediately resort to legal action against borrowers who default.

Instead, they prefer to fashion a payment plan that suits their business interests and the borrower’s personal finances. Sometimes, this may entail settling the balance for a discounted amount. In others, the borrower may have to make monthly payments until the balance is wiped clean.

Options after you default

There are three ways to handle defaulted Discover student loans:

  • Refinance with a new lender

  • Negotiate a settlement

  • File student loan bankruptcy.


When it comes to refinancing defaulted private student loans, the options are few and far between. Most lenders won’t touch you with a ten-foot pole, having already deemed you a risky prospect, given your previous inability to meet your financial obligations. But fear not, for one lender will throw you a lifeline.

Enter Yrefy, the student loan refinancing outfit specifically catering to those struggling with student loans in collections. Not only do they offer competitive fixed and variable rates, but they also work with borrowers to get a new loan with a customized, flexible repayment plan that won’t leave them high and dry.

And the best part?

Despite subjecting applicants to a hard credit check, the company doesn’t rely only on credit scores to make lending decisions. Rather, it factors in the borrower’s income and expenses to determine their ability to repay their student loan debt.

Related: Yrefy Review

Negotiate a settlement

While there are no guarantees, Discover and other major student loan lenders such as Sallie Mae and Navient are known to be receptive to settling private student loan debt that’s been charged off. Though they may not have been open to such a proposition before the loans defaulted, they’re often amenable to the idea afterward because it’s simply good business sense.

In essence, they’re given an opportunity to recover some of their losses rather than risk receiving nothing if the statute of limitations ends before they can haul you or your cosigner into court.

To secure a settlement, you must likely come up with a lump sum payment or be able to make payments on a reduced settlement amount over a few months.

The extent to which you can reduce your debt burden through a settlement hinges on a few key factors, including your loan amount, financial situation, and the skill level your negotiator possesses.

It stands to reason that you might want to consider enlisting the services of a seasoned student loan attorney with a wealth of experience working with Discover and its often dogged debt collectors.

Related: Can You Negotiate a Student Loan Payoff?

File student loan bankruptcy

With private student loans, the prospect of filing for bankruptcy may not immediately occur to you as an ideal solution. You might even think to yourself right now, “But wait. Student loans can’t be discharged in bankruptcy!” You can. For those weighed down by an overwhelming burden of debt, it can be a lifesaver.

Related: How to File Bankruptcy on Student Loans

Unlike student loan refinance, which may not always be a viable option, bankruptcy can resolve your private loans from Discover and let you reclaim the ability to live a full life, complete with buying a home, starting a family, or pursuing other long-held aspirations.

As a student loan lawyer who has helped many clients navigate this treacherous terrain, I can attest to the efficacy of bankruptcy in securing realistic and affordable settlement agreements. Take, for example, a single mother in Texas who was able to settle a $112 thousand private student loan debt for a mere $40 thousand over a decade, interest-free. This arrangement enabled her to drastically reduce her monthly payments from an exorbitant sum greater than her mortgage to a more manageable $300 per month.

Another client, a teacher in Missouri, was able to settle a whopping $430 thousand in private student loan debt for just $86 thousand over 20 years, with a modest 1% interest rate. The impact on her financial well-being was truly transformative, and these types of outcomes are far from rare.

Interestingly, private student loans are often easier to manage in bankruptcy than federal student loans. Private lenders are far less likely to extend flexible student loan repayment options, as does the Department of Education with its income-driven repayment plans or student loan forgiveness programs like Public Service Loan Forgiveness.

While filing for bankruptcy may seem intimidating, it’s worth noting that the financial repercussions are typically limited to two years. Often, this is a more favorable outcome than continuing to struggle with private student loans that may never be repaid.

Related: How to Prove Undue Hardship for Student Loans

The cosigner won’t be released

It’s a harsh reality for those defaulting on their Discover loans: the option to release your cosigner from their financial obligations is simply not in the cards. The very purpose of their signature on your promissory note is to assume responsibility for repaying the debt should you fail to do so.

If you’re seeking to safeguard your cosigner’s financial future once your loans have been charged off, the only recourse available is to negotiate a settlement agreement that explicitly removes their liability for the outstanding debt. It’s a challenging process, to be sure, but one that could ultimately prove beneficial for both you and your cosigner.

Related: Student Loan Cosigner Rights

Forgiveness isn’t an option

Discover student loan forgiveness isn’t really a thing. Unlike the federal government, Discover doesn’t offer any forgiveness options to borrowers who have made payments for several years or have paid off the original loan balance. The stark reality is that Discover will relentlessly pursue you for payments until the entire balance is paid in full.

In the event that you’re considering moving your Discover loans over to the federal government, take note that such a maneuver is simply not an option. Private loans from Discover cannot be combined with federal loans through a Direct Consolidation Loan.

The Discover settlement doesn’t help

In recent years, Discover’s student loan division has had a few brushes with the law, prompting the Consumer Financial Protection Bureau (CFPB) to step in and order the company to refund millions of dollars to affected consumers. Despite these legal entanglements, the CFPB has yet to mandate that Discover cancel any outstanding loans or remove any accrued interest from borrowers’ balances.

Instead, Discover has been compelled to offer an account credit of up to $500 to the roughly 5 thousand borrowers victimized by the company’s dubious practices. While this may seem like a paltry sum relative to the scope of the issue at hand, it’s a step in the right direction and a tangible effort to rectify the damage done by Discover’s missteps.

Bottom Line

Private student loan lenders like Discover are often willing to settle student loans, but only after the borrower misses payments. Negotiating a payoff for less than the current balance isn’t guaranteed and comes with risks. But with the right plan, you might secure a deal that lets you pay significantly less than you owe.

Let’s talk if you want help settling your student loan balance. During our call, we’ll discuss possible settlement options and any alternatives that fit your needs and goals.

UP NEXT: How to Get Rid of Private Student Loans

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