Student Loans - What To Do When You Can't Pay Your Private Student Loans
Our last newsletter focused on relief available for those who can’t pay their Federal Student Loans. As I discussed, there are many relief options for those with Federal student loans if they don’t wait too long to take advantage of the relief programs. As usual, time is of the essence in contacting lenders to whom you owe money, but can’t repay.
This newsletter focuses on relief options for those who can’t pay their Private Student Loans.
If you miss your payment on a private student loan, you could be declared to be in default by your private student loan lender. There is no 9-month default delay, like in many federal student loan agreements. Filing a Bankruptcy is considered a default under private loans, as well as breaking other promises in the loan agreement or note. If, in the lender’s opinion, you are likely not to pay, for financial reasons like loss of job or default on other debts like credit cards, this can also be a default under most private student loans.
Once you are in default, the private student loan creditor usually refers or assigns your file to a 3rd party debt collector. The private student loan lender doesn’t have the access to the powerful collection tools of the Federal government, like tax return intercepts (although they can sue and ultimately obtain this) or Social Security benefit offsets. Usually the private student loan lender or its debt collector will just sue you and collect a judgment.
Once the private student loan is reduced to a judgment you will be able to exempt some of your assets from collection or garnishment. Also the State statute of limitations should determine the collection life of the judgment. That means the debt collector may have only 20 years (in Oregon) as opposed to the rest of your life, which is often the case if the lender doesn’t obtain a judgment.
Some private student loans offer forbearances and deferments, but there appears to be no requirement to do so. Many private student loan lenders offer deferments only while the borrower is in school. It’s best to get a copy of your original loan agreement to see what was offered in the agreement. It might surprise you.
Settlement is often accomplished through the debt collectors for a lesser amount than the loan, particularly if the debt collector thinks that collecting the debt may be difficult. Say if the debt is quite old and/or you have lost your job. A few private student loan lenders have cancelled the loan with proof of the borrower’s death, but that is not required as the creditor can participate in estate distributions.
Congressional creation of the Consumer Finance Protection Bureau, (CFPB) might provide some assistance for regulating unfair, deceptive, or abusive acts or practices by student loan lenders. The CFPB is requiring Discover Bank to pay $18.5 million in consumer refunds and fines for using illegal practices while servicing private student loans. CFPB has set up a student loan ombudsman’s office to, among other duties, attempt to resolve informal complaints from borrowers. Please check out their website for more information.
There may be some defenses to the collection of your student loan that could be revealed upon careful review.
And even though it’s often thought that Bankruptcy will not discharge student loans, recently Judge Randall Dunn, an Oregon Bankruptcy Judge, has allowed a discharge of a private student loan in the recent case of Nunez v. Key Education Resources.
If you are having problems paying your private student loan or are in default, give us a call now at (503) 363-7334 for a free consultation.