If you have taken a private student loan and are unable to make the payments after a few months, what happens and what should you do? So, if you are such a candidate and want to know, rest assured, we will cover all the legal steps for you which will help you a lot.
First of all, know this – defaulting on private student loans can have serious consequences, such as damage to your credit score and possible legal action.
Your credit score will be significantly affected when you default on private student loans, which can last for seven years or even more. This can make it difficult to obtain credit in the future, including credit cards, car loans, home loans and more.
Besides damaging your credit score, lenders may take legal action. The lender may choose to sue you, which could result in loss of wages, asset forfeiture, or even a lien on your property.
What is a default on a private student loan?
Default on a private student loan occurs when a borrower fails to make their loan payments for a period of time. It means that the borrower violated the terms of the loan agreement and is not meeting his obligation to repay the borrowed funds.
Typically, a private student loan is considered in default after a certain period of nonpayment, usually 270 days after the last payment. Once your loan defaults, there are several legal steps the lender can take to collect the loan.
In this situation, the lender has the right to take legal action to recover the unpaid loan. This may filing a lawsuit against the borrower, seeking a court judgment to garnish their wages, seizing their property, placing a lien on their property, etc.
So what can you do to avoid defaulting on private student loans?
If you’re having trouble making your payments, the first step is to contact your lender as soon as possible. Many lenders offer the lowest monthly payment option and also offer to change the payment date for your convenience. Next, you need to look at your budget to see where you can cut expenses to pay off your loan.
If you are at risk of defaulting on your loans, there are several steps you can take to avoid default and manage your debt:
Actions Needed to Avoid Defaulting
- Contact your lender: If you are having difficulty making your loan payments, contact your lender as soon as possible. Many lenders offer hardship programs, such as a temporary payment deferral or loan modification, to help borrowers avoid default. Your lender may also be able to provide you with information about alternative repayment plans or debt consolidation options.
- Consider Income-Driven Repayment Plans: If you have federal student loans, you may be eligible for income-driven repayment plans, which allow you to pay a percentage of your income towards your loan payments. These schemes can help you make your loan repayments more affordable and can also lead to loan waivers after a certain period.
- Check for forbearance or moratorium: Review for forbearance or any of the available moratorium options which can help you avoid defaulting on your loan.
- Review your budget: Take a close look at your income and expenses to see if there are any areas you can cut to free up extra money for your loan payments. Consider reducing discretionary spending, such as eating out or entertainment, and find ways to save on your monthly bills, such as by negotiating with service providers or switching to a less expensive plan.
- Communicate regularly with the lender: To avoid the long-term consequences of defaulting on your student loan, act early and communicate regularly with your lender.
- Explore debt consolidation: If you have multiple loans with different lenders, consider consolidating your loans into a single loan with a lower interest rate. This can make your loan payments more manageable and also reduce your overall interest cost.
- Get help: If you’re still struggling to make your loan payments, consider getting help from a credit counselling agency or financial advisor. They can help you develop a personalized plan to manage your loan and avoid default.
Remember, if you are at risk of defaulting on your loans it is important to act as soon as possible. By being proactive and exploring your options, you can avoid the serious consequences of default and take control of your debt.
What legal action is taken?
When a borrower defaults on a private student loan, the lender may take legal action to collect the unpaid loan. Legal actions may include:
- Lawsuit: The lender can file a suit against the borrower in court to recover the unpaid loan. If the lender wins the lawsuit, the court may issue a judgment requiring the borrower to repay the loan, any interest and fees.
- Wage Garnishment: If the lender obtains a court judgment against the borrower, they may be able to garnish the borrower’s wages. This means that a portion of the borrower’s paycheck will be withheld and sent to the lender to pay off the loan.
- Asset forfeiture: The lender may be able to seize the borrower’s assets, such as a car or property, to repay the loan. This usually requires a court order.
- Lien: The lender may place a lien on the borrower’s property, such as a home or car, which gives the lender the right to seize the property if the borrower does not repay the loan.
However, borrowers have legal rights and protections and should consult an attorney if they are facing legal action or are unsure of their legal rights and options.
FAQs
A: No, student loans cannot be forgiven if they are in default. However, it is possible to renegotiate the terms of the loan or use various options such as deferment or forbearance to avoid default.
A: The best way to pay off your defaulted student loan is to work with your loan servicer. They can help you explore options to get out of default such as consolidation or rehabilitation.
A: If you are in default, the lender can take legal action against you, such as lawsuits, asset forfeiture, wage garnishment and damage to your credit report that can make it difficult to qualify for future loans.
