The Consumer Financial Protection Bureau recently estimated that 25% of all borrowers are currently delinquent or in default on a student loan. While bankruptcy is generally not a feasible option for most borrowers, there are many non-bankruptcy options that may be available depending on what type of loan you have.
The first step is to determine whether you have a private or federal student loan. If you’re not sure, you can access a list of your federal student loans from the National Student Loan Data System. If your loan doesn’t appear here, then it is not a federal loan.
Federal Student Loans vs. Private Student Loans
Federal loans generally have more repayment options than private student loans, including programs you can use to get out of default.
Federal loans generally offer repayment options based on your income level. If your loan is already in default, then you may be able to get out of default by completing a rehabilitation plan or consolidating loans. Once you’re out of default, you may then be able to switch payment plan options. Federal student loans also have administrative discharge options that may totally cancel your loan in some circumstances, such as if you are disabled or if you were unable to complete your degree because your school closed.
On the other hand, private student loans generally offer less options, and often have additional cosigners on the hook for payments. Some lenders have begun offering programs to assist borrowers with payment, including modification options, but there is currently no requirement that they do so.
However, when it comes to collection efforts, private lenders have far less options. If you default on federal loans, the government may collect payments from you by taking your tax refund, offsetting federal benefits (like Social Security), and garnishing your wages. A private lender, on the other hand, must sue you and obtain a judgment before it can involuntarily collect from you. These is similar to the procedure for a general credit card lawsuit.
If you are having difficulties paying student loans, contact Brine Consumer Law today for a free consultation, so that we may review your options.