What happens if I default on a private student loan? | Consumer Financial Protection Bureau (2024)

FAQs

What happens if I default on a private student loan? | Consumer Financial Protection Bureau? ›

If the student defaults on the loan, private lenders will often hire collection agencies to get you to repay, and they may also sue you in court. Lenders can also report your default to consumer reporting agencies, which could harm your credit.

If you're unable to make your private student loan payments, the lender can report your default to consumer reporting agencies, which could harm your credit. They may take different actions to collect the debt.

Filing for Bankruptcy

You can discharge federal and private student loans in bankruptcy. Bankruptcy is often considered a last resort option because of the impacts it can have on your credit and the costs and time involved in filing for bankruptcy.

Similar to other financial commitments, student loans can appear on credit reports. Since credit scores are calculated using information from credit reports, on-time payments -- and late or missed payments -- can impact credit scores.

You can be sued when you default on a student loan. Though it's more common to face a lawsuit for a private student loan, the federal government has the option of suing you in federal court.

If you default on your private student loan, the lender may collect it itself, but it might also turn the debt over to a collection agency or even write off and sell your debt to a third party debt collector.

Private student loans don't go away unless you pay them off, but in most cases, they'll fall off your credit report after seven years. But keep in mind that lenders can still contact you to collect an old debt, even if it's decades old and they can no longer take you to court over it.

Private student loans are only forgiven when the borrower becomes permanently disabled or dies. Your relief options will depend on your lender and loan agreement. Contact your lender and discuss your financial situation before defaulting on your student loans.

In the case of private student loans, or those not offered by the federal government, the creditor does not have any special wage-garnishing ability. The creditor must first sue you in court to obtain a judgment, and then they need to submit a court order to your employer with the details of the garnishment.

How to get defaulted private student loans off credit report? ›

All defaulted or delinquent student loans will remain on a credit report for a period of seven years, according to Experian. The seven-year timetable begins on the date when the debt is first late or missed. If you rehabilitate your loan, the default will be removed from your credit report.

Most creditors can not have your account frozen unless they have a judgment against you. However, not all. Government agencies that collect federal and state taxes, child support, and student loans do not need to have a court judgment to attach your account.

The answer is that they can be but unfortunately, it's not particularly straightforward. Last year, my team and I filed several private student loan bankruptcy proceedings across the United States. In each case, we removed some or all of the money our clients owed on these loans. This process is difficult.

Key takeaways. Not paying student loans could lead to late fees, a damaged credit score and wage garnishment. You may qualify for a repayment or forgiveness plan to help bring your loans current and get rid of the debt sooner.

How to get rid of private student debt. One of the few ways to get rid of private student debt is through discharge bankruptcy. It's an arduous — and expensive — process. You'll have to file Chapter 7 or Chapter 13 bankruptcy, then file an additional lawsuit known as an adversary proceeding.

And in some cases, lenders may send defaulted loans onto collections. If your student loans end up in collections, it can have some bad financial consequences. Your credit score may be damaged, and sometimes your wages may be garnished. While it can be very stressful, there are steps you can take to fix the problem.

No, you can't go to jail for not paying your student loans. So if that was a fear you had, take a deep breath—no one is coming to arrest you if you miss a payment. But like we mentioned, you can be sued over defaulted student loans. This would be a civil case—not a criminal one.