For college students who reach the annual or lifetime borrowing limits for federal student loans, private student loans can play a critical role in financing their education. Private student loans can cover the remaining balance so you can finish your degree on time.
Private loans work differently from federal loans. If you can’t keep up with your payments, you can’t use federal programs like income-driven repayment (IDR) or general forbearance, and you risk defaulting on your debt.
Defaulting on your student loans can have significant consequences. Understanding when private student loan default happens and how to get out can help you get back on your feet.
Private Student Loan Default: What Does It Mean?
Private student loans make up a relatively small amount of outstanding education debt. As of the end of 2024, under 8% of outstanding balances were in private student loans.
However, these loans are an important tool in financing college, and understanding how they work — and the consequences of missing payments — is crucial.
If you have outstanding private student loans in repayment, missing a single payment means your account is delinquent. If you miss payments for a certain period, your loans are moved into default. The length of time before your loans are in default varies by lender, but it’s usually 90 to 120 days.
Once you’ve entered private student loan default, the lender can take the following actions:
- The lender reports the missed payments to the major credit bureaus: The lender will report the defaulted loans to the major credit bureaus (Experian, Equifax, and TransUnion). Having a default on your credit report can cause your score to drop by 50 to 90 points, and the default will stay on your credit report for seven years.
- Your account could end up in collections: The lender may write off your debt and sell your defaulted loan to a collections agency. If that occurs, the agency can aggressively pursue payments by calling and emailing you, and they can charge you collections fees. The collections fees can be 25% to 50% of the collected debt.
- The lender could sue you: When you default on your loans, the lender has the option of suing you in court for the outstanding loan amount (and any fees). If they win a judgment against you, the lender can put a lien against your house, seize cash from your bank account, and even garnish your wages.
Indirectly, there can be other consequences of private student loan default:
- Employment: When you apply for a job, the prospective employer may run a background and credit check. With a defaulted student loan on your credit report, it may be harder to pass an employer’s check.
- Security clearance: When you apply for a job that requires you to qualify for security clearance, a defaulted student loan could hurt you.
How to Get Private Student Loans Out of Default
Private student loans don’t have the protections that federal loans do. Private lenders are tightly regulated, and they’re unable to alter the terms of the loan to help borrowers, so there is little flexibility.
However, once your loan is in default, there may be extra options:
Contact Your Lender About Loan Rehabilitation
If you’re in private student loan default, contact your lender about its loan rehabilitation process. Each lender has its own procedure. Depending on the lender, you may be eligible for an alternative payment plan, or you may be able to settle the debt for less than you owe.
Student Loan Refinancing
Student loan refinancing is difficult to do if you defaulted on your loans since it has such a significant impact on your credit. However, it may be possible if you have a co-signer with a steady income and excellent credit willing to co-sign the loan; their help could help you qualify for a loan and pay off the existing debt. Depending on the new loan terms, the payments could be more manageable.
Ways to Prevent Defaulting On Your Loan Debt
Private student loan default is a serious problem with a long-lasting impact. To prevent ending up in default in the first place, use these tips:
- Contact your lender: As soon as you start having trouble with your loan, call your lender to see if you’re eligible for forbearance or other financial hardship programs.
- Cut your spending: Review your budget and cut corners by canceling subscriptions, using coupons, or adding a roommate to lower your housing costs to free up cash for student loan repayment.
- Boost your income: If possible, increase your income by working extra hours, taking on a side gig, or selling unused items and using the money you earn to pay down your debt.
- Consider refinancing: Student loan refinancing can be an effective way to avoid private student loan default. You could qualify for a lower interest rate or a longer loan term and reduce your payments, helping you save money. Use the student loan refinancing calculator to find out how much you can save.
