You can think of your private loans as any other unsecured debt. Default in payments gets you to the lender's collections department. You will start getting harassing telephone calls and collection notices asking you to start making payments. Assuming you cannot do that, the balances on your loans skyrocket. Most of these loans have an interest rate of 7-10%. Balances increases cause the minimum monthly payment to increase. Your lender is soon asking you to makes payments you would never be able to afford. Unlike other unsecured debts, these types of loans cannot be discharged in a bankruptcy unless you meet the undue hardship exception. Inability to earn income sufficient to pay back your loans is not considered an undue hardship. Borrowers with a couple of options.
You could do nothing. Failure to pay back your debt as they come due is considered to be a breach of contract, which could lead to a lawsuit. The goal of your creditor would be to obtain a judgments to force you into some sort of repayment by levying on your bank accounts, garnishing your wages or attaching the judgment to property you own. This guarantees a mechanism for the lender to be repaid as long as you have income and it can follow you all the way to retirement. The other option is to consider a private student loans settlement. It has become more common for private student loans to be eligible for settlement.
Once your loan goes into default, it will likely be farmed out to a debt collector or sold to a third-party purchaser. Either way, this is the most opportune time to negotiate the settlement. Hiring a law firm with experience negotiating settlements could save you thousands of dollars in the end. Our law firm has found that lenders, debt collection agencies and third-party purchasers of these debts are inclined to accept far less than the balance due in the loans settlement. An experienced law firm can often settle these debts for 20-40% of the balance due, depending on the individual borrower's hardships and income. Lenders look at this as a matter of collect ability on the account and compare it to what they would otherwise get in a private settlement. While it may be far less than the total balance due, it may be more than they could ever collect if they decided to sue. It becomes a business decision for the collecting entity. This makes private loans settlement an enticing opportunity for both borrowers and lenders.
If you are experiencing difficulty in paying back your debt, you should consider speaking with our qualified debt relief law firm to determine if a private student loans settlement is in your best interest. Ignoring the problem won't make it go away. Developing a good plan with an experienced attorney can. You owe it to yourself to consider your options.
