As of March 2021, $136.3 billion was owed on private student loans. Most of the time, this debt is more complicated to pay off than federal student loans. With a private lender, you default when you miss three monthly payments.
If you don’t pay your private student loans, there are serious consequences, like collections and lawsuits. If you’re having trouble paying back your student loans, you must take action as soon as possible to keep things from worsening.
How Do I Know Whether My Private Student Loan is in Default?
Even though the words “delinquency” and “default” may sound the same, the two have essential differences.
You are considered delinquent if you are more than one day late on a private loan payment. This is usually when the credit bureaus will mark your price as late. You might also get mail or email notifications requesting payment.
When private student loan borrowers don’t pay, the consequences are much worse. According to the Consumer Financial Protection Bureau (CFPB), personal student loans go into default after three missed payments or 90 days.
And with some private lenders, your loan goes into bankruptcy after the first missed payment, much sooner than the 270 days you get with federal student loans.
Not making payments on a private loan is not the only way to go into default. Depending on the rules and terms of your loan agreement, you could be in default for any of the following:
- Death of a cosigner
- Bankruptcy (even if it doesn’t include your student loan)
- Defaulting on another debt (such as a credit card or auto loan)
Not all private loan servicers have these rules, but if yours does, you can find them in your loan agreement. How can you tell if you are behind on your student loans? Some of the telltale signs are:
- Collection attempts or phone calls
- Changes to your credit report
- Collections fees added to your loan account
- Legal notices
If you think you may be close to or already in default on a private student loan, it’s time to talk to your loan servicer about what you can do to get back on track.
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What Will Happen to Me if I Default on My Private Student Loan?
Defaulting on your private student loans has significant consequences. Because of this, it is essential to find a solution as soon as possible.
Damage to Your Credit Score
Late payments and defaults can destroy your credit score. After bankruptcy, it might take years to fix.
When you don’t repay your loan, late and collection fees are added to the amount you owe. Most of the time, collections fees are at least 20% of what you pay monthly.
For instance, if your monthly payment is $500 and you’ve missed three payments totaling $1,500, a $300 fee could be added to your principal. Your loan will take longer, and interest can change how much you pay.
Negative Effect on Your Cosigner’s Credit Score
When you don’t make the payments on a loan, someone else helped you get it; it hurts your credit scores. That could lead to problems with other people as well as with money.
Withheld Academic Transcripts
Some universities won’t release your transcripts until your student loans are current.
Since private loans don’t have the same tools as the federal government to get their money back, they must go to court. If they win the case, they could take money from your paycheck or put a lien on your property.
Unlike with federal loans, you won’t be able to get a second chance. That makes it even more important to get your repayment under control.
What Will My Lender Do if I Default on My Private Student Loan?
Private lenders have fewer ways to get their money back if you don’t repay your student loans, but that doesn’t mean they won’t try. If you don’t pay back a private student loan, your lender could do the following:
- Add fees to the amount you owe.
- Tell the credit bureaus about your missed payment.
- Send your bill to a company that collects debts.
- You have to pay the whole amount.
- You are in court to take your wages or file a lien.
Alternatively, federal lenders can take your wages, tax refund, or government income payments without going to court. These are good ways to get student loan borrowers to repay their debts.
Private lenders pursue repayment differently. For example, Sallie Mae tells credit agencies about borrowers who don’t repay their loans and makes them pay the total balance.
Most private lenders only go to court when they have no other choice. They don’t go to court unless nothing else works because it costs a lot.
Most of the time, it takes private lenders years to go to court. Once they reach that point, they will try to get their money back by putting a lien on your wages or property.