Private student loans are an alternative to federal student loans and provide you with a way to pay for college expenses. The interest rate on private student loans can be higher than federal student loans, but the interest may be tax-deductible if you itemize your deductions on your taxes. If you have taken out a private loan in order to pay for college expenses and are having trouble repaying it back, here’s what you need to know:
Default Private Student Loan
Defaulting on a private student loan is similar to defaulting on any other type of consumer debt.
Private student loans are generally not dischargeable in bankruptcy. Private student loan borrowers may be able to have their debt discharged if the loan was taken out for a qualified education expenses related to a clearly identified goal (such as earning a degree) and the borrower has made at least “minimal” payments on the loan for five years straight.
Private student loans are not dischargeable in bankruptcy, but there are other ways you can work towards getting rid of your private student loan debt. In this article we’ll highlight some options that could help you get out from under your mountain of debt!
When you default on a loan, that means you have not made payments on your loan for 270 days or more.
When you default on a loan, that means you have not made payments on your loan for 270 days or more. You may be considered in default if you miss 3 consecutive payments or make only one payment within the last 6 months.
What happens when I default?
When a borrower defaults on their student loans, it can have serious consequences. The following actions will be taken against them:
- Legal action: Your loan servicer can sue you for repayment of what is owed and other costs associated with collecting the debt. In addition to having your wages garnished (see below), if they win their suit, they may get a judgment against you that could prevent any future mortgages from being approved by Fannie Mae or Freddie Mac (the two major mortgage buyers).
- Wage garnishment: If wage garnishment does not yield enough money to satisfy your loan obligation, then your wages will be garnished up to 15%. This means that out of each paycheck earned before taxes are deducted an amount equal to 15% would go directly toward paying down any outstanding balance on private student loans.* *
There are several steps that can be taken if you do not pay back your private student loans.
If you do not pay back your private student loans, the lender will contact you. They may send text messages and emails, or even place phone calls in order to make sure that payments are made on time. If these methods fail, they will send letters reminding you of the due date and threaten that legal action could be taken if payment is still not made by then.
If all else fails, the lender may place your account into default status and report this to a credit bureau. This means that your credit score will drop significantly as they report this information to other lenders who use it to determine whether or not someone should be approved for loans in the future.
If none of these steps work (or if they were never attempted), then the lender can take more drastic measures: freezing your bank accounts and garnishing wages from employers until enough money has been collected through garnishment orders (court orders which allow for some portion of an individual’s paycheck).
The first thing that will happen is that your school and the lender’s collection agency will notify you via text, phone calls, emails, or letters that you have not been making payments.
The first thing that will happen is that your school and the lender’s collection agency will notify you via text, phone calls, emails, or letters that you have not been making payments. You can expect to be contacted by several different people at this point. The lender may send you a letter with a payment plan they would like to offer. If they do not accept your proposal and continue to demand payment in full within 30 days of receiving your loan documents (or what is left of them), then they can begin legal proceedings against you for defaulting on the loan agreement signed when you took out the loan in college.
If no payment is made after these attempts to contact you, the lender will place your account into default status and report this to a credit bureau.
If you don’t make a payment on your loan, the lender will send you a notice that you have defaulted. Your account will be sent to collections and reported to a credit bureau. Collection agencies can be contacted by phone, mail or email. They may also contact employers or family members for payment information if the borrower does not respond.
If there is no activity on your account after 120 days of non-payment, it’s considered closed by the lender – meaning they’ve written off any remaining balance as uncollectable debt (and possibly sold it to another company). This means that if something goes wrong later in life (like losing your job), this defaulted loan could be one of many factors preventing you from getting back on track financially.
Collections agencies can also freeze your bank accounts and garnish your wages in order to repay the loan.
If you default on your private student loan, it is possible that a collections agency will obtain a judgment against you. Once this happens, the collection agency can place a lien on your property to ensure that its claim is paid back.
A collections agency can also freeze your bank accounts in order to prevent you from withdrawing money from them and making payments towards your private student loans. This means that if you want access to the funds in one of your bank accounts, you must pay off all outstanding debts with the collection agency first. If they do not receive payment within 10 days of freezing an account, they may ask for a court order allowing them to seize any other assets belonging to someone whose name appears on the same tax return as yours (such as wages).
Once they have received their money back the collection agency fees are typically added onto the loan amount that you owe since this is included in your contract with the lender.
If you are unable to pay back your private student loan, the collection agency will take over the account. They will likely add fees to your original loan amount which is stated in your contract with the lender. These fees can include:
- Collection fees
- Legal costs
- Late fee surcharges
If you borrow money through private student loans, make sure you thoroughly read the terms and conditions of the loan agreement before signing it.
If you are considering taking out a private student loan, be sure to read the terms and conditions of your loan agreement carefully. A good rule of thumb is to make sure that all aspects of the agreement are understood by both parties, including:
- What type of loan is being offered?
- Who will be responsible for paying back these loans?
- How much money is needed for each payment?
It’s also important to understand what happens if you default on your payments. For example, some lenders charge late fees when payments are made after their due date or send collection agencies after borrowers who have not made their required payments on time.
If you have defaulted on a private student loan, it’s important to understand what will happen if you do not repay the debt. Once your account is in default status with the lender, collections agencies can garnish your wages and freeze your bank accounts in order to collect on their money. This means that they may also add fees onto what you owe as well!