December 13, 2018

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…]