Private Student Loan Default: What Happens Next?

#1 Student loan lawyer

Updated on May 8, 2024

When private student loans default, your loan servicer will report the late payments to the credit bureaus. This will lower your credit score. This is the first consequence of falling out of good standing on private loans.

If you miss more monthly payments, your lender will “charge off” the loan. This puts you at risk of having your wages taken, your bank account seized, or a lien placed on your house. And don’t forget about the stress and sleepless nights that will come until you find a solution.

Thankfully, you have options to deal with defaulted private student loan debt. We’ll cover those and more ahead.

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What Is Private Student Loan Default?

Private student loan default occurs when you fail to make payments as agreed in the loan’s promissory note. The timeline for private loan default is typically shorter than that for federal student loans.

Usually, federal loans are considered defaulted if you don’t pay for 270 days. But private loans can default faster. The Consumer Financial Protection Bureau (CFPB) says private loans might default after you miss payments for just 90 days. Sometimes, if you miss even one payment, the lender might say your loan is in default.

Related: Defaulted Student Loans 20 Years Ago

What Happens If You Never Pay Private Student Loans?

If you don’t pay your private student loans, your credit history will show late payments. Your loan balance may increase due to collection fees. Debt collectors may bother your family, friends, and job to make you pay back the loans you didn’t repay.

  • Immediate Delinquency: Your loan status changes to delinquent when a payment is missed. This is a critical time to prevent further complications.

  • Full Repayment Demand: Lenders can demand borrowers to pay back the whole loan right away. This can be too much for borrowers.

  • Late Fees: Failing to pay on time leads to extra charges, increasing your overall debt.

  • Negative Credit Reporting: If you miss a few payments, it can greatly damage your credit score. This can affect your ability to get loans, find housing, and possibly get a job.

  • Debt Collection: If you don’t make payments for about 90 days, your debt might be sent to a collection agency. These agencies are known for using aggressive tactics to get their money back. They might call your family, friends, or even your workplace.

  • Legal Risks: Lenders or collection agencies may take legal action to get back the debt. This could result in wage garnishment or asset seizure.

  • Credit Report Impact: A default stays on your credit report for seven years. This can hinder your financial stability. It can also make it difficult for you to qualify for new Federal Student Aid if you’re going back to graduate school or borrowing loans for your child. Most federal student loans don’t review your credit. But the PLUS Loan program checks your credit history for late payments before approving your loan.

  • Cosigner Implications: A cosigner shares the consequences of default. They face credit and legal challenges that are similar.

  • Future Financial Opportunities: Defaulting makes it hard to get loans for important things like buying a home or car. It may also raise the interest rates of your existing credit cards, personal loans, and so on.

Related: What Happens When You Default On a Student Loan?

Private Student Loan vs Federal Student Loan Default

Private loan companies don’t have as much power to collect debts as the government does. Right after you default, the U.S. Department of Education can:

  • Take money from your paycheck

  • Seize your tax refund

  • Offset your Social Security Benefits

And they can do it all without needing to sue you.

Private lenders don’t have that power. They must go through court first. They need a court order before they can start taking money from your wages or bank accounts. This process takes more time and effort than how the government collects federal loans.

Based on what I’ve seen, lenders and debt collectors often wait until the last possible moment before taking you to court.

Related: Student Loan Default Rate

Comparison Table


Private Student Loans

Federal Student Loans

1. Collection Powers

Require court judgment for wage garnishment or bank levies.

Without a court order, can garnish wages, take tax refunds, and offset Social Security benefits.

2. Default Timeline

May default after 90 days of missed payments, sometimes sooner.

Typically, default after 270 days of nonpayment.

3. Forgiveness Programs

*Generally lack forgiveness options.

Offers programs like PSLF and Teacher Loan Forgiveness.

4. Loan Rehabilitation

Limited or no options for loan rehabilitation.

Rehabilitation options available to restore loans to good standing.

5. Income-Driven Repayment Plans

Not typically offered.

Available, providing flexible payment options based on income.

6. Impact on Co-signers

Co-signers share the consequences of default.

Cosigner implications vary based on loan type.

7. Legal Actions

Must start legal proceedings for serious collection actions.

Legal actions can be more direct and extensive.

8. Loan Consolidation

Typically not an option for defaulted loans.

Available option letting borrowers combine multiple federal loans into a single loan.

* Private student loans usually do not have forgiveness programs. In some rare cases, defaulted private student loans were canceled. This happened in class-action settlements, like the Navient lawsuit. But this type of relief is uncommon. You should not expect it to happen to your loans.

Related: Help With Delinquent Student Loans

What Happens When a Private Student Loan Charges Off?

When a private student loan is charged off, the lender has determined that the borrower is unlikely to repay it and has written it off as a loss. This typically happens after a borrower has been in default for a long time, usually at least 180 days. The lender then sells or moves the loan to a collection agency or sues to recover the debt.

The loan will also be reported as charged off to the credit bureaus, adding to the negative effect on your credit score already in place from the past-due payments that led to the default.

Related: Can I Get a Conventional Loan With Defaulted Student Loans?

How to Handle Defaulted Private Student Loans

The consequences of defaulting on private student loans are scary. But you can do things to stay safe. The first thing I do for my clients is read the loan agreement or talk with the loan servicer to find out what triggers default. Does default happen after missing one, three, or nine payments?

At the same time, I also check what choices they have to pay back the loan after it’s defaulted. These choices can be different, and sometimes better, than before you missed any payments. Not only can you pause payments (deferment) or reduce them (forbearance), but some lenders might even change the loan to make it easier to handle. They can lower the interest rate forever and give you more time to pay, so your monthly payments become smaller and easier to manage.

After you get the basic information, it’s a good idea to learn how to recover from default, improve your finances, and rebuild your credit.

Strategies for Recovery

  1. Catch Up or Restructure: If you’re behind on payments, try to catch up or discuss a new repayment plan with your lender that aligns with your current financial situation.

  2. Refinance Your Loan: Refinancing can be an effective strategy if you’re looking to lower your monthly payments or interest rate. This is helpful if your financial situation has improved since you first took out the loan, potentially qualifying you for better terms and a lower interest rate for the new loan.

  3. Dealing with Charge-Offs: If your loan is charged off, negotiate a settlement. You may strike a deal where you pay significantly less than your current balance. If you can’t afford to settle, student loan bankruptcy might be the best solution. It can protect you and your cosigner from being sued.

  4. Collections Management: Keep detailed records of all communications if your loan is in collections. Negotiate where possible, and please seek legal advice, especially if you’re facing legal action.

Long-Term Financial Rehabilitation

  1. Rebuilding Credit: Use tools like secured credit cards or credit-builder loans to rebuild your credit score gradually.

  2. Maintain Consistent Payments: Adhering to any new repayment or settlement plans helps restore your credit history.

  3. Credit Monitoring: Regularly check your credit report for inaccuracies and dispute any errors promptly.

Know Your Rights and Manage Debts

  1. Understanding Your Rights: Educate yourself about the Fair Debt Collection Practices Act (FDCPA) to understand your rights when interacting with debt collectors.

  2. Dispute Inaccurate Debts: If you encounter debts that seem incorrect, challenge them and ask for debt verification to ensure their legitimacy.

  3. Credit Use: Lower your overall credit use ratio by paying down existing debts, significantly influencing your credit score.

How to Get Private Student Loans Out of Collections

Getting private student loans out of collections can be complex, but there are several strategies you can employ:

  1. Dispute the Debt: First, make sure the information the debt collection agency has is correct. Review your credit report for accounts opened in your name, including student loans. Make sure the dates and amounts listed are correct. If there are any issues, or if you notice a loan you didn’t take out on your report, you must open a dispute with the loan servicer and the three major credit reporting agencies.

  2. Settle Your Debt: If you defaulted on private loans, you might get your loans out of debt collection by settling the debt. Under this approach, you negotiate with the debt collections company to pay off less than you owe. For example, if you owed $20,000 in student loans, you could pay just $15,000. Related: Can You Negotiate a Student Loan Payoff?

  3. Pay the Amount Owed: If you’re able, consider asking friends or family for help paying your outstanding balance. Or, you can take on an extra job or side hustle to increase your income. Getting out of student loan collections quickly will get you back on your feet much faster.

  4. Consolidate or Rehabilitate Your Loans: Federal student loan borrowers usually have these options. But some debt collectors have their own loan rehabilitation programs. As for consolidating or refinancing options, Yrefy is a lender that can help.

  5. Declare Bankruptcy: If debt collectors are hounding you but cannot resolve your debt by other means, bankruptcy could be an option. Student loans are difficult to get rid of in bankruptcy. But it’s not impossible. To qualify, you must show the court significant hardship, such as a medical issue preventing you from working. You must also prove that it would be impossible to repay the loans while maintaining a basic standard of living.

  6. Consult a Student Loan Lawyer: If you have a private student loan in collections, a student loan lawyer might 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.

Related: How Much Will Credit Score Increase After Student Loan Default Removed

Bottom Line

Remember you’re not alone if you’re struggling to keep up with your private student loan payments. My team and I have met with thousands of Americans in your shoes. The key is to understand your repayment options and your finances.

Book a call with our team if you want help figuring out the best strategy for your situation. We’re here to help you find the best path forward.

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Stop Stressing


Do Private Student Loans Go Away After 7 Years?

No. Private student loans do not go away after 7 years. This is a common misconception. While negative credit information, including default on student loans, generally falls off your credit report after seven years, the debt does not disappear. You are still legally responsible for repaying it.

How Much Can Private Student Loans Garnish?

The amount private student loans can garnish from your paycheck varies by state law. But it’s typically part of your disposable income, ensuring basic living expenses are not unduly affected.

Can You Be Sued For Not Paying Private Student Loans?

Yes, lenders or collectors can sue for unpaid private student loan debt. But you may have defenses if that happens. For example, maybe the statute of limitations ended, the debt collector doesn’t have the right paperwork or the collection agency hasn’t registered as a debt collector in your state.

How Do Private Student Loan Default Rates Compare to Federal Loans?

In the past, private student loans had lower default rates than federal loans. In 2014, the default rate for private loans was 2.74%, while it was nearly 10% for federal loans. This difference was likely because you can borrow a federal student loan even if you're unemploeyd and have a bad credit score. Federal loans aren't based on your creditworthiness. But private student loans are. You must have a good credit score and enough income to pay your living expenses. If you're missing either, you'll need a cosigner who has both. The private student loan default rate may be changing. The Federal Reserve raised interest rates to stamp out inflation. This has led lenders to raise the rates of variable interest loans. And that has caused borrowers' monthly payments to increase to the point that many can no longer afford to make their payments.

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