Private Student Loans: Your Legal Options When Payments Become a Problem
Updated: Sep 11
Private student loans are very different from federal student loans.
Federal loans may offer income-driven repayment plans, Public Service Loan Forgiveness, administrative discharge programs, and other federal protections.
Private student loans generally do not offer those same programs.
But that does not mean private student-loan borrowers have no options.
The right strategy may depend on:
- the type of loan;
- the promissory note;
- who owns the debt;
- the interest rate;
- payment history;
- whether the loan is current or in default;
- whether there is a cosigner;
- applicable state law; and
- in some cases, federal bankruptcy law.
Start Here: Private Student Loan Questions
Below are some of the most important questions private student-loan borrowers should understand.
Can Private Student Loans Be Discharged in Bankruptcy?
Many borrowers have been told that private student loans can never be discharged in bankruptcy.
That statement is too broad.
Some private education loans may fall outside Bankruptcy Code § 523(a)(8), which can mean the borrower may not have to prove undue hardship at all.
Federal student loans can also sometimes be discharged in bankruptcy under a different legal analysis.
Which Private Student Loans Can Be Discharged Without Proving Undue Hardship?
Not every loan used for education receives the same special treatment in bankruptcy.
The answer can depend on the school, the program, the amount borrowed, enrollment status, cost of attendance, and the actual loan documents.
The bankruptcy treatment of a private student loan can depend heavily on whether the debt actually falls within Bankruptcy Code § 523(a)(8).
Can You Settle Private Student Loans for Less Than You Owe?
In some situations, a private student-loan lender or debt owner may agree to accept less than the full balance.
But settlement is not automatic, and intentionally defaulting just to try to get a settlement can create serious risks.
Private Student Loan Payment Too High? What Can You Do?
Private student loans generally do not have the same federal income-driven repayment options available for federal loans.
Depending on the lender and the loan agreement, possible options may include hardship assistance, refinancing, modification, settlement, cosigner release, or bankruptcy analysis.
Do Private Student Loans Have a Statute of Limitations?
Private student loans can be subject to statutes of limitations that affect how long a creditor has to file a lawsuit.
The applicable period can vary by state and may depend on the loan agreement, payment history, default history, and other facts.
Before You Make a Major Decision
Before refinancing, settling, defaulting, making a payment on an old account, or assuming a loan survived bankruptcy, consider reviewing:
- the promissory note;
- current statements;
- payment history;
- lender and servicer information;
- cosigner documents;
- school and program information;
- bankruptcy documents, if applicable; and
- any collection or lawsuit papers.
Sometimes the most important question is not:
“How do I pay this loan?”
It is:
“What exactly is this debt, and what law applies to it?”
Need Help With Private Student Loans?
Private student-loan problems can involve bankruptcy law, state contract law, statutes of limitation, collection issues, cosigner liability, and the specific terms of the loan.
An individualized review may help determine which issues should be investigated.
This page provides general educational information and is not legal advice. Laws and individual circumstances vary. Reading this page does not create an attorney-client relationship.
Comments