What Happens When You Default On Private Student Loans scaled 1

What Happens When You Default On Private Student Loans?

What happens when you default on private student loans? Lenders may report your default to credit reporting agencies, which could damage your creditworthiness. They do take various actions to collect the debt.

Private student loans often default as soon as you miss three monthly payments (90 days). You can also default on a private student loan if you file for bankruptcy, fail to pay another loan or die.

Private lenders may attempt to collect your debt directly, or they may hire collection agencies to attempt to collect your debt. They can also sue you.

You should carefully review your private loan agreements to better understand your rights if you are concerned about default. If you have not received a letter from your administrator and believe you may be in default, you should contact your administrator immediately to discuss payment options and determine if you can avoid default.

The process of defaulting on your federal student loans begins as soon as you miss a payment. These are the three steps that lead to non-compliance:

  • The first day after you miss a payment: Your federal student loans are considered past due and you may be charged late fees.
  • After 90 days or more of missing a payment: Your loan servicer reports the delinquent bill to all three major credit bureaus, meaning it shows up on your credit report and can affect your credit score.
  • After 270 days or about nine months of late payments: Your federal loan becomes delinquent and your debt could go into collections.

TIP: If you’re concerned that you won’t be able to repay your private student loan, contact your lender or administrator as soon as possible. You may be able to negotiate with your lender to set up a payment plan or pay off your debt.

When does a private student loan Default?

Most private student loans are technically in default after a student loan payment is missed. However, each lender has its own rules about when a private student loan defaults. So the best way to know when your loan is in default is to check your promissory note.

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Common reasons for non-compliance:

  • Bankruptcy. Some private lenders have defaulted on borrowers when they or their co-signers file for bankruptcy, even if no attempt is made to cancel the private student loan in the adversarial process.
  • Death of the co-signer. While it’s not as common, your lender or student loan servicer may speed up your student loan debt when they realize your co-signer has passed away.
  • Default on another loan. Many promissory notes contain clauses that allow the lender to default on student loan borrowers if it is determined that the borrower is insolvent or has defaulted on another debt (e.g., credit card).

Can private student loans be obtained When it’s Defaulted?

You generally cannot get a private student loan outside of default. Unlike the federal government, there are no private student loan rehabilitation programs. Once you default, your options are limited to setting up a payment plan or negotiating a student loan agreement.

Do private student loans disappear after 7 years?

There is a limitation period for private student loans. Your liability for your private loans can therefore disappear if the limitation period is 7 years or less. On the other hand, federal student loans — Federal Family Education Loans (FFEL), Federal Perkins Loans, Direct Loans, etc. — are not subject to a statute of limitations. You will owe these loans until you repay them or meet the eligibility criteria for loan forgiveness.

What Happens When You Default On Private Student Loans?

The consequences of private student loan default include:

Damage to a credit report.

After you miss your first monthly payment, your loan manager will tell you about the late payments, and your co-signer’s credit reports will hurt your FICO credit scores in the process. Late payments remain in your credit history for 7 years.

Loan sent to collections.

About 4-6 months after you miss your first payment, your loan will be defaulted and then canceled. When that happens, your loan usually goes to your lender’s collections department. From there, your loan can stay there for a few months, or it will go to a collection agency.

Collection costs.

Your loan agreement may allow your lender to add collection fees to your balance. Unlike the federal government, which waives collection fees for delinquent student loans, private lenders generally don’t waive collection fees unless you negotiate a settlement.


Many lenders wait several months or years before filing a lawsuit. It costs them money to hire a law firm. As a result, many lenders typically wait until collection agencies prove ineffective at collecting money from you before sending your loans to a law firm to file a lawsuit against you for student loans.

Private lenders have limited collection powers compared to the federal government. For example, if you default on a federal student loan, the U.S. Department of Education may automatically seize your wages, receive your tax refund, or offset your Social Security benefits. Until they are charged, however, private lenders cannot. And even if they sue, private lenders have to win and get a judgment before they can seize your wages or take money out of your bank account (garnishment).

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Can Private Student Loans Put a Lien on Your Home?

Student loans can lie on your house if you don’t pay and your lender sues you and gets a verdict. However, the loan holder will not normally force the sale of their home. Instead, you keep the lien on your home until you sell or refinance it. At that point, you have to pay off your student loans to get rid of the lien.

How to solve private student loan default?

Wage garnishment sounds scary, but the good news is that you can potentially avoid that and other serious consequences by addressing your private student loan default right away. Here’s what to do:

1. Get help paying your private student loan

If you can’t keep up with your private student loan payments, don’t ignore the problem. Contact your loan manager or lender to discuss payment options. Some lenders offer forbearance to help you recover and avoid defaulting on a private student loan. You can also request a new payment plan by email – here’s a sample letter to get you started.

2. Refinance Private Student Loan

If you’re having trouble paying your private student loan, you may be able to refinance your debt for a lower monthly payment. However, once your private student loan defaults, your credit score will suffer, making it harder for you to get a new loan, so it’s best to try this method before you miss out on payments.

In no time at all, you can ask a family member or friend to lend you money to pay off your private student loan. Still, this option can jeopardize your relationship, so be careful.

3. Pay off your private student loans in direct debits

If your private student loans are in default, you may be able to negotiate a settlement of your student debt. Contact your collection agency and ask how much it would cost to pay off the debt; it’s worth asking.

Keep in mind that this method works best if you have some cash that you can immediately offer as leverage for your negotiations.

4. Know your rights as a borrower

As a borrower, you still have certain rights, even if you are in default. As the Federal Trade Commission points out, it is illegal for collection agencies to use “abusive, dishonest, or deceptive collection tactics.”

For example, they can’t call you before 8 am. or after 9 p.m. without your permission, and if you tell them not to contact you at work, it is illegal for them to continue doing so. The Consumer Financial Protection Bureau (CFPB) has some sample letters if you need to push a collection agency.

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Also keep in mind that the statute of limitations in your country may protect you from actions against past debts.

5. Dispute the blame and ask for verification

A collection agency is legally obliged to provide you with information that shows that you are obliged to pay the debt.

In general, you must request a full proof of origin of the loan and you have 30 days from the first communication to request this validation. Once you have received validation, check the information against your data.

If there is a discrepancy, you may be able to show that the debt is void, that you owe less than the creditors, or that the debt does not belong to you.

6. Consult a student loan attorney

If you have a private student loan in collections, a student loan attorney can help. The lawyer can send collection agencies a cease and desist order to prevent them from contacting you directly. The attorney can also explain any relevant state laws that can protect you.

Hiring a student loan attorney may become a necessity if you are sued for nonpayment of a private student loan.

Refinancing delinquent private student loans is usually not an option. Lenders check your history with all 3 credit bureaus before approving you for a new loan. It will be difficult for you to find a lender who is willing to refinance a loan due to lack of timely payments.

When does a private student loan charge off?

Many private student loans are canceled after 120 days of default. However, cancellation dates differ from lender to lender. For example, Navient’s cancellation date is usually between 150 and 180 days. Sallie Mae and SoFi are usually a bit later.

Can you consolidate private student loans in default?

Lenders typically refuse to consolidate or refinance delinquent private student loans because the borrower has demonstrated that they cannot keep up with their monthly payments. But there is one lender, Yrefy, that works specifically with borrowers who haven’t paid their private loan but want to refinance to a lower fixed rate and better payment terms.

Should I default on my private student loans?

Defaulting on your private student loans may be your best option when:

  • You have no more delay and no more leniency
  • You can’t afford your loan manager’s repayment options, and
  • You cannot refinance.

Many borrowers have strategically defaulted on their private student loans in hopes of negotiating a student loan agreement. As shared above, non-compliance is not without consequences. However, the advantage may be that you get a deal that saves thousands on your loan balance.

What happens when a student loan is charged off?

The original creditor pays off a private student loan after you’ve been in default for several months. When that happens, the original lender considers the student loan a loss and assigns it to a collection agency to collect the unpaid debt. Some lenders will also set the interest rate to zero, so that the interest no longer accrues.

Private loans for students and coronavirus

Since the start of the COVID-19 pandemic, the federal government has suspended monthly payments and interest on federal student loans. They have also prevented collection agencies from garnishing wages, accepting tax refunds and settling Social Security benefits. However, they have not extended any of those benefits to private student loans, even for borrowers who are lagging behind and facing financial difficulties.

Conclusion – Private student loan Default is serious, but solvable

What happens when you default on private student loans? The consequences of defaulting on a private student loan can be serious. However, there are many options to help you avoid negative consequences.

Work with your lender to explore payment options to keep your loans current. And if you default on a private student loan, always remember that you have rights. Review your legal protections and enforce them if necessary.

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