Private Student Loans Default

Student loan debt has reached $1 trillion – which means nearly half of Americans have student loans. And while many of us think we’re safe (or at least less likely) to end up having trouble paying our loans off, recent research shows that defaults aren’t just rampant among students – they’re happening almost everywhere else.

The good news? There’s hope! A new report released today by Sallie Mae shows that people who take out private student loans do better financially than those who took out federal student loans. But even though the numbers may seem bleak, there are things you can do to make sure you don’t fall victim to student loan default.

Here’s how to avoid it:

Pay back your loans. As soon as you get them, start making the minimum payments. You’ll still be spending money, but you won’t be accruing any interest. Plus, if you pay back your loans early, you could be eligible for extra incentives like lower monthly payments and forgiveness options.

Don’t go over your limit. If you’re struggling to keep up with your current payment, it’s time to refinance. Your credit score affects what interest rate you qualify for, so you want to get it up above 650 before taking out a new loan.

Make sure you understand what you’re signing. Take your paperwork seriously. If you do run into problems, you should call the company immediately.

Don’t delay payments. If you end up missing a few payments or delaying a payment for whatever reason, consider applying for hardship forbearance. Hardship forbearance lets you skip a payment for 180 days without losing your grace period.

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Private Student Loans Default

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Private Student Loans Default

Private student loans have become increasingly popular among American students seeking financial aid. However, many private student loans come with high interest rates making them unsustainable over time. In fact, about 45% of defaulted student loan borrowers were repaying their debt while still enrolled at school. That means that a staggering number of students, who borrowed privately, are currently paying back thousands of dollars each year and are often under financial strain.

Why did they default?

Many students chose not to repay their loans due to economic hardship. More than half of these people had been laid off, lost their job, or experienced some other type of significant setback. Many others simply could not afford to pay back the loans.

What should I do if I am having trouble managing my finances?

You might want to consider consolidating your loans to decrease your costs. Consolidation can help make paying back your loans easier, especially if you have any outstanding balances. This may mean that you need to pay less money per month once your consolidated loan begins. Additionally, lenders may be willing to forgive some of the amount you owe if you consolidate your loans.

Should I avoid taking out private student loans?

Unfortunately, no! If you are struggling financially, then it’s okay to seek out private student loans. As long as you know how much you will be expected to pay back, then you can focus on getting ahead. It’s always good to prepare for emergencies though, as you never know what unforeseen events might cause unexpected expenses.

Private Student Loans Default

Private student loans default rate rose to its highest level since October 2013

According to the New York Federal Reserve survey, the rate of private student loan defaults rose to 1.62 percent in October 2019, up 0.45 percentage points from September’s reading of 1.17 percent.

This was the highest reading since October 2013 at 1.89 percent.

The government-backed Stafford Loan program accounted for 71.8 percent of the total number of outstanding private student loans, while the PLUS (Parental Plus) and FFELP programs each held 14.9 percent.

Among the top 10 lenders, only two reported higher than average rates of delinquency – Navient Corporation, which serviced $15 billion worth of loans, and Great Lakes Higher Education Corp., which had $11.8 billion in debt.

Private Student Loans Default

Private student loans have been around forever, but they’ve only recently become a serious problem. Why? Because banks were willing to give them out left and right (and still do). Even though these loans are federally insured, default rates are sky high…

2….because many borrowers don’t know how bad their situation actually is. One recent study showed that over 50% of loan recipients didn’t even know what their monthly payments would look like until after they’d already signed off on a deal! Once that happens, you’re locked in. And who knows if the bank will ever send you a statement showing exactly what you owe?

To find out if you might qualify for debt forgiveness, check out the Bankruptcy Code’s section 523(a)(8) – it says private student loans aren’t dischargeable, meaning that once you sign away your rights to try to get rid of those debts later on, lenders can’t touch them.

Of course, if you’ve got a big enough balance, going bankrupt isn’t necessarily a viable option. So, maybe it makes sense to just work things out instead. Talk to your lender about options like deferment or forbearance. You might not be able to pay less than the minimum payment each month, but at least you’ll have some breathing room.

If you think you might qualify for forbearance/deferment, make sure you call first. Many companies won’t respond to inquiries about that unless you’ve been through formal channels, and then they may set a strict deadline for repaying your loan before giving you any relief.

Do you really want to go back to school? Maybe you need to learn something new. Or perhaps you could take some time off to focus on yourself and explore what else there is in your life. That’s okay; you don’t have to earn money while you’re doing this. But if you’re struggling to keep up with payments on your loans, it might help to consider paying down the principal a little bit – and in turn reducing the amount you’ll need to repay each month.

Just remember that if you’re thinking about declaring bankruptcy, it’s best to consult with a lawyer before taking action.

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