How to Get Defaulted Private Student Debt Back Into Repayment

In 2019, defaulting on private student loans remains a very bad idea, as there are major financial and legal repercussions to having your loans moved to default status, none of which you will want to face if you have any other possible option.

Why? Because private student loan defaults are likely to destroy your credit, making it hard to get a mortgage, qualify for a great job, rent a home or apartment, and they’ll also open you up to all sorts of scary collection activities from debt collectors who are likely to be much more aggressive (and obnoxious) than your current student loan servicer.

In fact, defaulting on private loans has even lead to a huge rash of lawsuits for borrowers, where the student loan servicing companies and debt collectors are suing individual borrowers in court for failing to live up to their debt obligations, a process that becomes extremely costly to defend yourself against!

And while I was previously confidant that President Trump’s Student Loan Reform Plan would include some sort of help for people defaulting on private student loans, I’m no longer optimistic that he’s going to do anything to help out any borrowers whatsoever.

Fortunately, you do have options for avoiding a student loan default, or moving your loans back out of default status and into repayment again, which is precisely what this Guide is all about. Whether you’re worried about defaulting, or already have defaulted, you’ve come to the right place!

But Before We Get Into The Details…

If you’re worried about defaulting on your loans, or if you need help moving your loans out of default and back to repayment status, then don’t panic quite yet.

Instead, what you should do is call my partners at McCarthy Law PLC; a group of attorneys who specialize in dealing with PRIVATE Student Loans. They're the only company who can significantly reduce your private debt and lower your monthly payments, no matter how much you may owe or how long you've been in default.

How do they do it? First, they negotiate with your lender to settle your private debt for around 40% of whatever you currently owe by promising that you'll pay off the entire settled amount in a single, lump-sum payment.

Don't have 40% sitting around in cash? Don't worry! They'll get you a new loan for the amount your lender settles on, allowing you to pay off the settled loan in its entirety, restoring your credit, and reducing your monthly payments.

McCarthy Law is the only company I trust to help my readers with Private Student Loans, but please DO NOT CALL them if you only have Federal loans, because they won't be able to help.

To get McCarthy's help with your Private Student Loans, call them at 1-877-317-0455.

What Happens When You Default?

Unlike Federal student loans, which offer a 9 month delinquency period that begins when you miss a payment, and which don’t become a default until you fail to catch up over that 9 month window, private student loans default the very moment you miss a single payment.

And as soon as your private student loans go into default, you will immediately be at jeopardy of facing an array of serious financial consequences, from having your account sent to collections, getting your credit score destroyed or even having your wages garnished, let alone the potential legal repercussions.

The rest of this article explains what you can do to avoid a default, how you can come up with an effective long-term solution if you’re approaching defaulting on your student debt, and finally, I’ll tell you exactly what I recommend doing if you’ve already defaulted, but are looking to get your loans back into repayment.

What Are Defaulted Private Student Loans?

Defaulted private student loans are any student loan you took out from another source other than the Federal Government, and which you failed to pay back on time.

Missing just a single payment will lead to your private student loan going into default, so it’s incredibly important that you make every single payment throughout the course of your repayment period, on time, and in full.

And it doesn’t matter why you miss a payment, whether you didn’t receive the paper bill that month, or your check was lost in the mail, your loan will go into default at the moment your lender notices that they haven’t received their monthly payment on time.

What Are The Consequences of Default?

Default is a big deal, no matter how you look at it.

Private student loan debt is still considered a “special” form of unsecured debt in one important way; defaulting on them opens you up to some major legal consequences.

When your private student loan defaults, it gives your creditor (lender) something called “a cause of action” that allows them to sue you for breach of contract, since you’ve failed to live up to the agreement of your original loan contract.

Lenders can use their cause of action to take you to court and sue you for damages, leading to all sorts of major financial problems, from having your wages garnished, to getting a levy placed on your bank accounts or even a lien attached to your property.

What Could Happen if I Default?

Let’s face it, even with the election of President Trump, the economy isn’t all that great, and we may be looking at a long-term sag, or even a return to the great recession, so lenders are looking to raise revenue in any way they can, including by attacking their own borrowers.

Here’s a breakdown of the steps that your lender is likely to take should you default on your private student loans:

  • Direct Collection – First, the lender will try to collect the money themselves.
  • External Collection Agencies – Next, they’ll submit your account to an external collections agency.
  • Credit Reporting Agencies – You’ll be reported to the Credit Reporting Agencies, and your credit score will be crushed.
  • Sued in Court – If you still haven’t responded, you’re likely to be taken to court and sued for breach of contract.
  • Wage Garnishment – If you lose in court, you might end up having your wages garnished, losing 10-25% per paycheck.
  • Financial Levies – If you lose in court, your bank accounts could be taken over by the lender, who will be allowed to remove any money you owe them automatically.
  • Property Liens – If you lose in court, a lien could be attached to your property, allowing the lender to take their percentage of the revenue you create by selling or refinancing your house or other property.

As soon as you miss a payment, your lender will probably contact you immediately to let you know that you have defaulted on your loan and that you’ll need to issue a payment immediately to get your loan back into compliance.

You should be happy that they’re giving you a chance to avoid the default status, and immediately make whatever arrangements you need to get that payment out, because going into default is not a good idea.

What Happens If I Ignore The Default Notice?

If you don’t respond to your lender’s initial attempt to throw you a lifeline, or if you decide to outright refuse to issue payments to get your loan back on track, then it’s likely that your lender will hire an outside collection agency to start harassing you for repayments.

You’ll start getting phone calls, letters, emails, and perhaps even social media messages reminding you about the money you owe, and the collections agent may even start contacting you daily, or multiple times per day, to demand the money that you owe.

If that process doesn’t work, then your lender or the collections agency may take things a step further by summoning you to court, where you’ll be sued for breach of contract, and likely forced to repay your debt, plus penalties, fees, and legal and court costs.

Should you lose in court, the lender will have three main options for getting their money back from you. Those are:

  • Garnishing Your Wages
  • Placing a Levy on Financial Accounts
  • Attaching a Lien to Your Property

These are serious legal and financial repercussions that will end up causing you a major hassle, a ton of stress, and probably a lot more money than you would have owed from simply paying back your loan.

Default Consequences Explained in Detail

They might not sound all that bad at the outset, but having your wages garnished, getting a levy attached to your bank accounts and having a lien put on your property are horrific consequences that you should try avoid at all costs.

Default on your private student loans and you’re likely to face one of these three major financial disasters:

  • Wage Garnishments – When your wages are garnished, your employer is forced to deduct a certain portion of your wages from each pay check so that it can be sent to your creditor, instead of to you. Not only does this reduce the amount of money you take home with each paycheck, but it also lets your employer know that you’re facing serious financial problems. Some states don’t allow wage garnishing at all, while others allow between 10-25% of your wages to be removed from each paycheck. Defaulting on private student loans and ignoring the problem, refusing to work with your lender, and pretending like things will just work out is not the solution. If your private loans go into default, it’s time to get busy and work out an agreement with your lender before your wages start being garnished.
  • Bank Account Levies – When a levy is attached to your bank account, that means that your lender will be able to take the money you owe them directly from your financial accounts and apply it to the amount of money that you owe them. Think you can get away with defaulting on your student loans and just pretending like the debt doesn’t exist? Think again. Lenders can, and will, pursue a levy on your accounts. To prevent this from happening, be sure to contact your lender at the first sign of trouble. If you think you might miss the next monthly payment on your private student loan debt, it’s better to let them know in advance and see if you can get an extension, consolidation, refinance, or some other form of assistance to prevent going into default.
  • Property Liens – When a lien is attached to your property, that means your lender has an “encumbrance”, or a claim, on that property. If you own a home and go into private student loan default, your lender could sue you in court to win a judgment allowing for a lien to be placed on your home, meaning that if you sell or try to refinance your house, your lender will automatically get whatever money you owe them out of the sale or refinance before you can pocket any of it yourself. If you’ve got a lien on your property for more than the equity you’ve built up in the property, the lien is likely to prevent you from being able to sell or refinance at all. Each state has different rules on how liens work, but suffice it to say, you don’t want one of these, and should do everything that you can to avoid allowing one to be created.

What Should I Do if I Think I’m Going to Default?

If it looks like you’re going to miss a payment, or if you even think there’s any potential for missing your next payment, then the first thing you should do is contact your lender immediately.

Lenders aren’t evil people, and many are willing to work with their borrowers to avoid the disaster that a default entails.

Default is extremely stressful for you, but it’s also stressful (and expensive) for your lender too.

They don’t want to chase you around with letters and phone calls, hire outside collections agencies to harass you, or pay for lawyers to sue you in court, so they’re often willing to make deals with borrowers who let them know that there’s a problem, especially when they’re alerted to that issue in advance.

As soon as you think you’re going to have a problem, contact your lender and let them know. You’ll likely be offered some form of forgiveness, perhaps with a payment extension, some sort of debt consolidation or loan modification, or something else that will give you the time you need to scrape up the money for your monthly payments.

Should I Hire a Student Loan Relief Company?

Honestly, it depends.

If you’re the type of person who enjoys performing complicated research, handling detailed financial matters, and arguing with loan servicers, debt collectors and attorneys, then you won’t need to hire anyone to help deal with your debt.

However, if you’re like most people, and you don’t like researching, arguing, negotiating, playing financial hardball and basically battling it out with loan servicers, then you’ll probably want to pay a company to handle the complicated parts of the process for you.

Fortunately, as I explained toward the beginning of this Guide, I’ve finally found a private student loan debt relief agency that I truly trust, and who I would love to hook you up with, called McCarthy Law PLC.

What do I like so much about McCarthy Law? These guys run a national network of attorneys, so they can meet you face to face, no matter where you’re located, and they’ve got enough boots on the ground and a wide enough pool of clients that they have some serious weight to throw against the debt collection agencies and servicing companies who usually can’t be negotiated with.

In fact, McCarthy Law specializes in renegotiating your private debt, whether or not it’s already in default, and getting the lender to agree to settle it for significantly less than you owe. Their typical settlement runs something like 40% of the outstanding debt.

How do they get the lender to give up 60% of what you owe them? By securing a new loan for you for the settled amount, and promising the lender that you’ll pay them the full 40% they agree to settle on in a single, lump sum payment.

Lenders love this program because it means they get paid SOMETHING, it reduces their legal costs, and it allows them to focus their resources on pursuing debt from other borrowers.

The benefits of the program for you are that you’re able to basically write off 60% of your current debt, get your old defaulted private loan paid off, which will help repair your credit, and start making payments on the new loan that’s only for 40% of what you owed before, meaning it’s almost guaranteed to come with much lower monthly payments.

To find out if McCarthy Law is able to help you deal with a default, call them now at 1-877-317-0455.

Benefits of Paying for Help

The advantages of bringing in a company to do the work for you is that they’ll work to prevent wage garnishments, prevent calls from collections agents, lower your monthly payments, work toward getting some of your debt written down, reducing your interest rate and improving your credit score.

What’s the downside to outsourcing this work? It has a price attached to it, of course, because no one is going to do this for you for free.

Fortunately, there are lots of companies that offer this sort of assistance, but as I mentioned earlier, there’s only one who I trust to handle private loans for my readers.

Once again, if you do decide to hire on a company to assist you with the private default process, I recommend you contact McCarthy Law, as they’re the only people I trust to get the job done properly.

Doing It On Your Own

On the flip-side, if you’re the type of go-getter person who likes mixing it up, arguing, negotiating, etc., then remember that you can try to accomplish the same goals yourself, without paying anyone a single penny!

Yes, the companies that offer to help you through private student loan default do have expertise in the process, and yes, they’ll probably be able to negotiate a better solution for you much faster than you could do it yourself, but it is possible to go it alone.

Everyone is different, and you’ll have to make the decision for yourself on whether or not it’d be worth trying to sort it all out yourself, or outsource it to an expert.

If you’re a lawyer yourself, have a strong background in finance, or are very experienced in negotiations, then you may be able to pull something off that ends up being a better deal than bringing in a hired gun.

Honestly though, I doubt it. Just remember that one key reason to bring someone like McCarthy Law on board is that they represent a huge network of clients, and that if some servicing company or debt collector really upsets them by refusing to budge on a settlement amount, then they can launch legal activity against that lender to tie them up in court for YEARS, costing them MILLIONS of dollars.

That’s the power of utilizing a network of borrowers, and it’s the reason why I suggest spending a little bit of money now to save a LOT of it later!

What To Do If You’re Already in Default?

If you’re already in default, then you’re probably sick of the phone calls letters, and threats by now.

You should know by now too, though, that there are only a couple of effective solutions for getting out of your defaulted private student loans:

  • Debt Rehabiliation & Debt Repayment Programs
  • Filing for Bankruptcy and pursuing a Debt Discharge

Every case is different, and your specific situation will determine which course of action you should pursue.

Don’t be tricked into thinking that there’s a one-size-fits-all solution to private student loan defaults, because your specific circumstances should be dictating your strategy here.

One thing to keep in mind is that you do have rights, under the Fair Debt Collection Practices Act, and that if your rights are being violated, then you should file a complaint with the Consumer Financial Protection Bureau.

Speaking with them, talking to a lawyer, or again, calling a company like McCarthy Law are going to be your best bets for figuring out what you should do next.

Default Rehabilitation & Repayment Programs

The first option is to sign up for some kind of debt rehabilitation or debt repayment program, which will require working with your lender to come up with a solution for paying them off, though likely on different terms than you initially agreed to.

Don’t get confused about this part though – there are official student loan default rehabilitation programs for those with Federal student loans, but those same programs won’t be available to you.

Since you’ve defaulted on private student loan debt, the only rehabilitation process you’ll have available is whatever your lender decides to offer you. It could be something amazing, or it could be no help at all.

And you might just want to consult with a bankruptcy attorney before agreeing to anything, because sometimes lenders go nuts with penalties and added fees that do nothing but inflate your debt, making it harder for you to pay it off, and trapping you in a cycle of paying off ever-increasing interest and fees, but never reducing the principal on your loan.

How Long Does Default Last?

One handy tool in your arsenal will be that, unlike federally funded loans, your defaulted private student loan only remains in default for a certain amount of time.

The rule is different in each state, but when your loan goes into default, your lender will only have a certain amount of time to sue you and get a judgment passed to let them collect the money you owe them.

If you can somehow delay them for long enough, avoiding having that judgment passed on you, then you just might be able to escape any serious legal or financial consequences from defaulting on your debt, other than having your credit score completely ruined.

Unfortunately, this isn’t a very reliable, or intelligent tactic for dealing with a private student loan default, since things can go very badly for you if it doesn’t work out according to plan.

Private Student Loan Bankruptcy & Debt Discharges

Another option to get out of default, which also comes with some risk, is to declare bankruptcy and attempt to get your debt discharged, reduced, or otherwise modified to make it more affordable.

Borrowers who face enormous financial problems due to their private student loan debt have the chance of qualifying for full debt forgiveness via bankruptcy discharges, but it’s relatively rare, thus not a particularly reliable strategy.

In certain cases though, simply contacting your lender to let them know that you’re considering filing for bankruptcy and requesting a discharge can be enough to get them to loosen the reigns, open their proverbial pocket-book, and help you out of your bind.

Remember, lenders don’t want to deal with a bankruptcy case, lawyers, and all the added time, hassle and cost of attempting to collect a debt that you’ve given up attempting to repay, and begun to actively fight against.

Going on the offensive early, before your private student loan debt has defaulted, could give you the upper-hand in the struggle and allow you to get some of your debt written off, get your interest rate reduced, or get your loan term extended.

Threatening to file for bankruptcy is definitely a better idea than going into default without putting up a fight, but remember that actually filing for bankruptcy leads to some pretty serious negative financial consequences as well.

Whatever you decide to do, be sure to read up on the intricacies of Private Student Loan Bankruptcy before bringing it up with your lender.

Talk To a Lawyer

You probably don’t want to hear it, but the best thing you could possibly do to avoid major financial consequences from defaulting on private student loan debt is to speak to a lawyer who specializes in the subject.

It’s important to keep in mind that you’re not the only person to go through this process, and that you can leverage the knowledge of an experienced lawyer to help you get out of your debt obligation, or at the very lease, reduce the severity of the consequences you’ll face from defaulting on your loan.

A lawyer will review the particular details of your situation, let you know what your options are, and guide you toward picking the best strategy that will get you the most bang for your buck.

If you’ve got a defaulted private student loan, the worst thing you could possibly do is ignore the problem, hoping that it will either go away, or get better in time.

Before things get worse, get on the horn and start making some moves.

You could save yourself tens of thousands of dollars just by picking up that phone.

For Additional Information

There aren’t a lot of good free, widely available resources for getting help with defaults on private student loans, since most of the websites you’ll find from a Google search focus on federal student loans.

If you’ve got any additional questions about private student loan defaults, feel free to ask me in the comments section below and I’ll do my best to get you a response within 24 hours.

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Disclaimer:Information obtained from Forget Student Loan Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of Education.


Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt in 2011, where he offers advice, tips and tricks for paying off student loans as quickly and affordably as possible.