how to get a private student loan out of default

Why does private student loan default happen?

student loan default is when you fail to make payments outlined in your loan’s contract or promissory note. Reviewing your contract will help you understand the details regarding your lender’s policy on student loan default.

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

Missed payments

According to the Consumer Financial Protection Bureau (CFPB), private student loans usually default after 90 days of missed payments. However, some private lenders will put your loan into default after the first missed payment.

In comparison, most federal student loan defaults happen after at least 270 days of nonpayment, although Perkins loans can be placed in default far sooner.

Cosigner enters bankruptcy or dies

Some borrowers may need a student loan cosigner to secure a lower interest rate on their private loans. In some cases, the cosigner’s death or bankruptcy could trigger an automatic private student loan default, even if you continue making payments on time.

If something happens to your cosigner, check with your lender to see if this will affect your loan.

Bankruptcy or default on another loan

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

As with the situations described above, review your loan contract or speak with your lender to understand how this situation may affect you.

What happens when you default on private student loans?

A private student loan default can have significant consequences. Exact penalties will vary by lender, but here’s a general idea of what to expect.

Damage to your credit report

If you make late payments or fail to make any payment at all, the lender may report it to the credit bureaus. The negative report may also hit your cosigner’s credit, generally staying on both credit histories for seven years.

During this time, you and your cosigner could struggle to qualify for other types of financing, such as a mortgage, car loan or credit card.

Collection calls and letters

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 debt.

Hefty fees

If you default on your loans, you may get hit with late charges or collection, court and attorney fees. These additional expenses would increase your total balance due.

Legal action

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 have protections in certain instances.

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

6 ways to recover from private student loan default

While wage garnishment sounds scary, you may avoid that and other harsh consequences by learning how to get private student loans out of default fast.

  1. Request help with student loan repayment
  2. Refinance the private student loan
  3. Settle your debt 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 student loan repayment

Reach out to your student loan servicer to inquire about repayment options. Some lenders offer forbearance to help you catch up and avoid a private student loan default. You can also ask for a new repayment plan via email — here’s a sample student loan request letter to get the ball rolling.

2. Refinance the private student loan

If you struggle with your student loan payments, consider refinancing your student loan debt to get a lower monthly payment. Use our student loan refinance calculator to compare offers and estimate your potential savings.

However, having a delinquent or defaulted student loan will hurt your credit score — that can make it challenging to secure a new loan with a better rate, especially without a cosigner.

3. Settle your debt in collections

For private student loans in default, try negotiating a settlement of your student debt. Contact your debt collector and ask them how much it would take to settle the debt. This method might work best if you can offer them a cash payment of some of your debt as leverage in your negotiations.

4. Know your rights as a borrower

As a borrower, you still have certain rights — even if you 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. The Consumer Financial Protection Bureau (CFPB) has sample letters if you need to push back against a collections agency.

You should also be aware that the statute of limitations in your state could shield you from legal 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 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 debt validation letter, compare the information with your own records.

If there is a mismatch, you might be able to prove any of the following:

  • The debt isn’t valid
  • You owe less than the creditor claims
  • 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 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.

Hiring a student loan lawyer might become necessary if you’re being sued over a private student loan default, and you may be able to find one willing to work pro bono or for a low fee.

1. Fresh Start

Best for: Federal loan borrowers who defaulted before or during the Covid-19 payment pause and who act quickly

Through Sept. 30, 2024, this is the easiest way to get federal student loans out of default and back into good standing.

Simply log into your account at Federal Student Aid’s Debt Resolution website or call 800-621-3115 to start the process. Applying could take as few as 10 minutes, and you’ll have the option to get your loans on an income-driven repayment (IDR) plan. Once you’ve submitted your application, it may take four to six weeks for it to be processed (but you don’t have to wait to fill out the FAFSA if you’re hoping to borrow again).

Fresh Start has many benefits. It’ll remove the default record from your credit reports, stop collections on your loans and restore your access to federal financial aid. Plus, it may reinstate your Public Service Loan Forgiveness (PSLF) eligibility.

Direct loans, FFEL loans and Perkins loans held by the Education Department that defaulted before or during the payment pause are all eligible for Fresh Start. However, loans that defaulted after the payment pause, as well as Perkins loans held by schools and Health Education Assistance Loan Program loans, don’t qualify.

If your federal loans are in default, don’t wait — come October, Fresh Start will no longer be an option.

2. Loan rehabilitation

Best for: Removing federal loan default from your credit reports

While loan rehabilitation is usually the most common way to get federal student loans out of default, it has temporarily been replaced by Fresh Start. Rehabilitation involves making nine consecutive “reasonable” monthly payments over a 10-month period. “Reasonable” refers to 15% of the amount by which your annual pre-tax income exceeds 150% of your state’s poverty level for your family size (divided by 12).

Once you’ve finished making these payments, your loan will return to “repayment” status and the record of default will be removed from your credit reports. Any collections activity (including wage garnishment) will stop, and your loans may be transferred to a new servicer.

Loan rehabilitation is typically a one-time option. However, using Fresh Start won’t count toward your one-time rehabilitation pass — you’ll still be able to use it in the future if you default on your federal loans again.

When Fresh Start expires at the end of September 2024, loan rehabilitation will return. A good first step is to budget for your nine monthly payments to ensure you can stay on track, then contact your assigned federal loan servicer to understand the process.

3. Direct Consolidation Loan

Best for: Getting out of federal loan default quickly

Loan consolidation offers a faster path to getting out of default than rehabilitation since it can take three months or less. By consolidating your federal loans with a Direct Consolidation Loan, you can restore your repayment status by:

  • Agreeing to repay your new consolidation loan on an IDR plan, such as the SAVE plan, or…
  • Making three consecutive on-time and in-full payments on the loan before consolidation

Unlike Fresh Start and loan rehabilitation, loan consolidation doesn’t remove the record of default or missed payments from your credit reports. If the default has resulted in wage garnishment or a court order, you must first seek to have the garnishment lifted or the order vacated before you can apply for consolidation.

4. Private loan recovery

Best for: Private student loan borrowers in default

Private loans in default aren’t eligible for any of the three programs above. If you’ve fallen behind on private loan payments, contact your loan servicer about your options.

Your loan servicer may be able to offer a payment modification plan, student loan settlement or other resolution. You can also get help navigating the situation from a student loan counselor, lawyer or organization, such as:

While unlikely, it may be possible to refinance your student loans to bring them out of default. The missed payments and record of default will have hurt your credit scores, making it difficult to qualify, and some lenders won’t consider applicants with a default on their record. However, if you add a creditworthy cosigner, you might find a student loan refinance lender willing to overlook the default.

Note that, unlike federal loans, private student loans have a statute of limitations between three and 10 years that varies by state. Once that statute is up, your lender can no longer take you to court. However, actions such as making a payment or acknowledging that the debt is yours can reset the clock.

Did you know? The death or bankruptcy of your private loan cosigner may automatically trigger loan default, even if you aren’t behind on your payments. If (or ideally, before) this happens, contact your loan servicer for resolution.

Consequences of student loan default

Student loan default be stressful and have severe and lasting consequences for your finances, including:

  • Damage to your credit scores: Your loan servicer will report late payments and default to the credit bureaus, significantly damaging your credit scores. Late payments and default can stay on your credit reports for seven years. Poor credit scores can make it difficult to qualify for other types of loans, such as a mortgage, credit cards or a car loan, and may even affect your ability to rent an apartment.
  • Loss of federal benefits: If you default on federal loans, you’ll lose access to federal programs such as deferment, forbearance, forgiveness or income-driven repayment plans.
  • Wage garnishment: The government can garnish your wages if you default on federal loans. Specifically, your loan holder can order your employer to withhold up to 15% of your disposable pay (or the amount you earn after deductions are withheld). Private lenders can’t garnish your wages unless they get a court order first.
  • Other garnishments: The Education Department also has the power to garnish your tax refunds and Social Security benefits if your federal loans are in default.
  • Accelerated repayment: Your entire unpaid balance and interest charges will become due immediately.
  • Loss of federal aid eligibility: You’ll no longer be eligible for additional financial aid, such as grants, work-study opportunities and student loans, while your federal loans are in default.
  • Additional debt: Defaulting on student loans can make your student loan debt even more expensive due to late fees, additional interest charges and collections fees.
  • Collections actions: The collections agency may call to pursue repayment. Your loan holder can even sue you for unpaid federal or private student debt (assuming the statute of limitations hasn’t passed or been reset).
  • College records hold: Your school can withhold your official transcript, making it difficult to apply to another program. However, it should supply an unofficial transcript upon your request.

How to avoid student loan default: 5 strategies to try

1. Apply for an income-driven repayment plan

Works for: Eligible federal loans

You can adjust your federal student loan payments by applying for an IDR plan. Your options include the SAVE, Pay As You Earn (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) plans.

Each plan adjusts your payments to 10% to 20% of your discretionary income and extends your loan terms to 20 or 25 years. Depending on your income, you may qualify for a payment as low as $0 on an IDR plan — in exchange for accruing interest and a more expensive repayment overall. (In fact, 4.5 million borrowers currently qualify for $0 payments under the SAVE plan, according to the White House.) If you still owe a balance at the end of your term, the rest will be forgiven.

Because of these IDR characteristics, these plans are best if…

  • You need to temporarily lower your monthly dues — but plan to eventually resume standard repayment plan-like payments to cut down on overall interest charges. Your income is likely to grow significantly or return to its normal levels.
  • You need to permanently reduce your payments — and foresee needing to rely on IDR over the long haul, toward forgiveness. Your income is unlikely to change long-term.

2. Apply for loan deferment or forbearance

Works for: Federal loans and, depending on the lender, private loans

If you can’t afford to make any payments on your student loans or have a qualifying circumstance, such as going back to school, volunteering in AmeriCorps or being called to active duty in the military, consider applying for deferment or forbearance.

Both deferment and forbearance temporarily pause student loan payments. If you’re repaying federal direct subsidized loans, interest won’t accrue during a deferment. However, interest will accrue on unsubsidized loans — federal and private — during deferment and on all loan types during a forbearance.

You may qualify for federal loan deferment based on a variety of circumstances, including:

Type Of DefermentLength Of Deferment
Cancer treatmentDuring treatment and the six-month period after treatment ends
Economic hardshipUp to three years
Graduate fellowshipWhile enrolled in a graduate fellowship
In-schoolWhile enrolled at least half-time at an eligible institution
Military service and post-active duty studentDuring active-duty service and the 13-month period after service ends
Parent PLUS borrowerWhile the student is enrolled at least half-time and the six-month period that follows
Rehabilitation trainingWhile enrolled in an approved rehabilitation program
UnemploymentUp to three years

While there are clear-cut guidelines for deferment and forbearance on federal loans, rules for private loan pauses vary by lender. Economic hardship and natural disaster forbearances are the most common reprieves offered by banks, credit unions and online lenders.

3. Contact your loan servicer

“Struggling borrowers should reach out to their loan servicers to review their options or find ways to lower their monthly payment,” said Jill Desjean, senior policy analyst at the National Association of Student Financial Aid Administrators.

This is especially important if you’re repaying private student loans, since they don’t typically come with built-in protections like income-driven repayment or deferment. Some private lenders offer payment modification or temporary forbearance to help you stay current on your debt and avoid default, but this is more likely to be successful if you’re proactive and contact them before you miss a payment.

4. Create and maintain a budget

Creating a budget can help you keep up with student loan payments, especially now that the federal repayment pause is over. Take note of how much you earn each month (after taxes), along with your regular expenses. You might do this on a spreadsheet or budget-tracking app.

If your student loan payments are unaffordable, look for areas where you can reduce your spending to free up more cash. On the other side of the coin, consider ways to increase your income, such as working a side hustle, finding freelance work or getting a part-time job.

“One way to set yourself up for success in student loan repayment is to plan ahead,” said Desjean. “There are resources available to help borrowers estimate what their monthly payment will look like, so they can account for those payments among their total monthly expenses.”

One such resource is the Education Department’s Loan Simulator, which allows you to compare your monthly payments on different repayment plans.

5. Consider making in-school payments

You may not be required to repay your student loans while you’re in school, but making in-school payments is the best way to reduce your overall student loan interest and avoid your balances growing so large that you teeter toward delinquency or default.

Most loans accrue interest while you’re in school, causing your debt to grow. If you start repaying your loans sooner, perhaps via full, fixed or interest-only payments, you could face a smaller debt burden upon graduation. Some lenders give you the option to pay just $25 per month toward your student loans while you’re in school, which could make a difference for your future finances.

Refresher course: Understanding student loan default

Between March 2020 and October 2023, borrowers got a break from making payments on their eligible federal student loans. Now that payments and interest have resumed, you may have trouble affording your monthly dues. Unfortunately, missing payments can cause your loans to fall into delinquency or even default.

Federal student loans go into default after 270 days of missed payments. The timeline for private loans varies by lender, but they may default after 90 days of no payments.

Payments and interest, as well as collections actions, were paused on most types of federal loans during the Covid-19 pandemic. Now that payments have resumed, borrowers have a one-year “on-ramp” to get back on track with repayment. Through September 2024, missing payments shouldn’t cause your federal loans to default or get reported as delinquent to the credit bureaus.

If you’re wondering about the status of your federal loans, contact your loan servicers; similarly, you can contact the lender of your private student loans. You can also see your federal loan information by signing into your account at Federal Student Aid. A third option is to review your accounts on your credit reports, which you can order for free at AnnualCreditReport.com.

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