December 13, 2018

What Can I Do About Private Student Loan Debt?

private student loan debt - drowningOne of the more vexing problems in my student loan practice arises from questions about private student loan debt. In my view, private student loans are just about the worst type of debt imaginable. With very limited exception, you cannot discharge them in bankruptcy and collection agencies often use very aggressive collection tactics.

Often collection agencies act even more aggressively than they would for general unsecured debt like credit cards because the bankruptcy option is most likely not available.

Generally student loan borrowers only turn to private student loans when they have exhausted their federal student loan money. When I speak to high school students and their parents I point out that if they are considering private loans to pay for college, that is a sign that the college they are considering is too expensive or not a practical choice because of the negatives associated with private loans. These negatives are magnified even further if the private student loan lender demanded a co-debtor, like a parent, spouse or sibling. [Read more…]

Loan Modification Help on the Horizon for Private Student Loan Borrowers?

struggling student loan borrowerWhen talking to potential clients seeking information about repayment options for student loans, one of the first questions I ask has to do with whether the student loans are government issued or government insured, or if the loans are private loans.

If the loans are government loans – owed or managed by the U.S. Department of Education, we have a variety of options set out in federal law. Although the rules are not consistent among the various types of federal loans, for the most part, we have the option of curing defaults, restructuring payments based on the borrower’s income, getting some or all of the loan forgiven based on the borrower’s employment, and otherwise avoiding wage garnishment or bank account levy.

Basically, the Department of Education offers many options to help put struggling student loan debtors back into non-defaulted payment status. The rules to effectuate this goal are not always clear or consistent but that is the goal.

Private student loans are another story. None of the borrower friendly payment modification or default cure provisions set out in federal law apply to private loans. In fact I would go so far as to say that private student loans are one of the worst financial moves you can make – the loans are generally not dischargeable in bankruptcy, lenders have no incentive to work with you, and high interest and penalties that apply to private loans could leave you in unmanageable debt for decades. [Read more…]

Worst Case Scenarios for Private Student Loan Co-signers

worried student loan borrowerA recent U.S. News & World Report story about student loans contained a startling fact – more than 91% of private student loan borrowers took out private student loans with a co-signer.  In most cases, that co-signer is a parent.

What are the potential issues that could impact you if you are a co-signer? 1

First, you need to verify that the loan you co-signed for is a private student loan.  If you co-signed for a federal or federally guaranteed student loan, you will have additional protections.  This article focuses on private student loan co-signers only. [Read more…]

  1. Note the difference between a co-signer and a guarantor.  A co-signer’s obligation is exactly the same as the other co-signer, regardless of who is receiving the statements.  A guarantor, on the other hand, only becomes liable if the primary borrower goes into default.  See Wikipedia’s definition of co-signer here, and guarantor here.

Sloppy Accounting and Payment Processing Plague Private Student Loan Servicers

failure to apply extra student loan paymentIn the United States about 79% of student loans are either issued by the U.S. Department of Education or guaranteed by this agency. The remaining 21% are issued by private lenders 1  There was $157.8 billion of outstanding private student loans in Fiscal Year 2009]. Private student loans exist because federally issued or guaranteed loans have caps. For example, a direct federal loan (called a Stafford loan) has a cap of $2,000 per year for families who earn more than current income limits 2. If you attend an expensive private college, there may not be enough federal student loans (which can include Perkins and Plus loans as well) available to you and your only option will be private student loan lenders.

Unfortunately, private student loans do not include many of the borrower protection regulations that apply to government student loans. For example, if you go into default with your government issued or guaranteed student loans, you have unique options to cure that default and restructure your loans into a new payment plan based on your income.

In the case of a private student loan, if you go into default, you have no right to cure that default and you could find yourself facing lawsuits and wage garnishment.

In my student loan law practice, therefore, I have fewer options to offer my clients who are struggling with private student loans. There are some options, however – including Fair Debt Collection Practice Act violation suits, statutes of limitation and even bankruptcy. [Read more…]

  1. According to the U.S. Department of Education, the projected amount of outstanding federally issued or guaranteed student loans for Fiscal Year 2011 is  $745.5 billion.   About 8% of outstanding federal student loans are currently in default.
  2. Read more about the borrowing amount caps here.