How to Get Private Student Loans Out of Default With Loan Rehabilitation

Nicolas Cesare  | 

When you default on your federal student loans, you are often able to use student loan rehabilitation to get out of default. This is because federal student loans all share certain terms, and the option to participate in student loan rehab is among them. However, it’s often less clear what your options are if you default on private student loans. Private lenders can arrange their own terms, creating unique situations that occur with private student loan default. Let’s take a deeper dive into private student loans and what you can do if you default on them.

What are Private Student Loans?

When most people think of student loans, they think of loans arranged and distributed through the federal government. These federal student loans come in different types, each with its own specialized terms. The purpose of having federal student loans is create borrowing opportunities for young people, who might not have much credit history, to help them pay their way through school.

Unfortunately, you might find out that you’re not qualified to receive federal aid. If you find yourself in this situation and you still need help paying for school, you may seek out student loans from a private lender.

These loans are often provided by for-profit institutions, so you’re probably not going to be offered the same type of repayment plan as you would through federal student loans. For this reason, defaulting on your private student loans is even more likely and risky than federal student loan default.

What Happens When You Default on Private Student Loans?

Private student loan default happens when you miss a certain number of payments on your debt. On most federal loans, this happens about 270 days after your last missed payment. However, if you have private student loans you should check out the terms of your individual loans to learn more about your own timeline.

If you haven’t paid anything over the period of time laid out in your loan terms, then your loans will go into default. When this happens, your entire student loan balance becomes due. This isn’t because your lender expects that you’ll have all that money. Instead, this is to make a point that you are responsible for that full amount — your options for gradual repayment over time disappear when your loans go into default.

A record of your default will also end up on your credit report, severely damaging your credit score and making it more difficult to get loans of any kind further down the road.

If you don’t get out of default quickly, then your loan provider can sue for wage garnishment or send a collections agency after you.

How to Get Out of Private Student Loan Default.

Private Student Loan Rehabilitation

Student loan rehabilitation (or student loan rehab) is a powerful tool that lets you get your loans out of default and get any record of your default scrubbed from your credit history. However, one of the downsides of student loan rehab is that it’s rare for private lenders to offer it.

Before you try anything else, find out if your lender offers student loan rehab for your defaulted loans. If they do, you’ll probably be expected to meet a series of on-time payments. Once you do, your private student loans will be taken out of default and you can resume your usual financial life. However, if your lender doesn’t offer student loan rehab, then you should start looking for other options to get out of student loan default.

Consolidate Your Private Student Loans

One such option might be to consolidate your private student loans into a single loan that you can afford to make payments on. As with student loan rehab, the exact terms of your consolidation depend on what your lender offers. However, you can probably expect that you will need at least one non-defaulted loan that you’re in good terms with. When you consolidate, you will be lumping you defaulted loan in with the good one.

Pay Off Your Loans in Full

In principle it’s possible to pay off your private student loans in full in order to get them out of default. However, taking this option requires that you have the cash on hand to cover the full amount of your debt. Since it’s unlikely that you have this kind of money lying around, you can try to ask your friends or family for a loan to help you get out of default.

Negotiate a Settlement on Your Private Student Loans

Similar to how you can settle your credit card debt, it’s possible to negotiate with your private student loan provider to find a settlement that works for all parties involved. When negotiating a settlement, remember that the lender is mostly just interested in getting their money back. So even if they can’t get the full amount, they’ll be willing to accept a smaller lump payment just to recoup their losses. Take the time to talk with your lender to find an amount that they will accept and that you are able to pay.

Repair Your Credit

Unless you were able to do student loan rehab and remove your default from your credit history, then your credit score is definitely going to be in bad shape after you get out of default. It’s imperative that you fix your credit, or else your student loan default could haunt your financial records for years to come.

Private student loan default puts you in a difficult situation. Harsher terms on private student loans make default more likely, but private lenders aren’t always willing to offer the same tools for getting out of default that come with federal student loans. Work with your lender to find out what kind of student loan default solutions they offer and then work on your own to get your credit repaired after student loan default.

For more information on tips and guides on rebuilding credit, visit our credit score resource and learning center. For more articles on student finances and how to get a handle on student loans, visit our student finance learning center.


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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.

This post was updated January 10, 2018. It was originally published December 26, 2017.