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Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan

By on November 14, 2014

Right now if you have federal student loans there are good options to help lower or eliminate your monthly payment. To see those options, click here.

But what about when your private student loan lender won’t work with you. What are your options?

Well one of the options is to stop making payments on that unaffordable student loan. If the lender isn’t willing to work with you and you simply can’t continue to make payments, maybe you should just stop making payments. I know it sounds crazy, but listen to what attorney Greg Fitzgerald from California had to say about that. Greg can be found at DebtorProtectors.com. It’s not as crazy an idea as it first sounds.

1. There is a statute of limitations on private student loans. At some point, the creditor must decide to sue you or lose the ability to force payment from you. The sooner you stop paying, the sooner this time will come. If you get sued, see #7 below. If you don’t get sued, you will not have to pay anything. Not all private student loans get sued on.

2. If you are making some type of payment and the balance is not going down, you will owe the balance- FOREVER.

3. So long as you are making payments, no private student loan creditor will seriously negotiate with you to reduce the interest, let alone the principle amounts

4. The FDCPA (Fair Debt Collection Practices Act) and the RFDCPA (the CA state law version) DOES apply to private student loans.

5. The loan may be dischargeable in bankruptcy (not usually, but it does happen).

6. Your loan may be sold to a debt buyer. In fact, it may be sold several times. Your chances of success (defined as paying less than 100%) increases dramatically.

7. If you are sued: First, do not assume they will win. Second, they are not going to be able to force any payment from you until after: a) they win the lawsuit (get a judgment), AND b) enforce the judgment. This process can take several years and will motivate the creditor to negotiate. Third, we are finding the court forum is better for realistic payment arrangements or lump sum settlements than attempting to negotiate with a collector.

8. Save your money and use the time value of money on your side. $200/month saved will grow to over $7,200 in 3 years. Cash is king and will get you discounts.

9. Paying a private student loan before setting aside a small rainy day fund will leave you unprepared for life’s inevitable emergencies (which if you don’t have the money for will only cost you more as you borrow more).

10. The laws may actually change in your favor.

That Was Good Stuff. Here’s Some More.

Greg shared some excellent reasons why you might want to just stop paying on your private student loan. Keep in mind if you stop paying and the statute of limitations expires and they don’t sue, those loans can now be easily discharged in bankruptcy. But don’t forget that some private student loans can be eliminated in bankruptcy right away. Read this.

If the do sue you and the loans have been sold or transferred more than once, there is a good reason to suspect the current loan holder won’t be able to properly validate the loan if you push them to. If they can’t, then the whole issue may go away and the debt may be unenforceable. See this article and this one for more on how to validate the debt.

Don’t get me wrong, not paying on your private student loan has serious consequences. Not only will it negatively impact your credit score, but your balances will increase, and you could be sued.

But at some point you have to consider what your options are of heading down the dead-end path and limping along making minimum payments.

So let’s say you are just making minimum payments and that leaves you unable to save for your retirement or build an emergency fund. Not only are you sacrificing your retirement income, and that’s money you will absolutely need, but you are also setting yourself up for trouble in an unexpected financial time. It’s financial suicide to not have an emergency fund and it is ridiculous to have no retirement savings so when you are old and can’t work, you’ll be broke. If older you could kick the ass of younger you, they would.

Don’t rush to start skipping payments. If you do decide to do that, make sure it makes sense and you have worked out a plan of action in advance. If you need some help to figure this out, ask me your question and let’s get you headed in the right direction.


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About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

55 Comments

  1. TG

    September 17, 2018 at 2:55 pm

    I have a private student loan with Wells Fargo. At this time I have been unemployed for just shy of 2 years (Master Degree Holder), and I am unable to get hired from minimum wage jobs-to jobs I’m qualified for. My spouse cannot make the payments, nor is his name on the private student loan. With no employment, I have no income, therefore I cannot make my $345.00 monthly payment wells fargo wants. I have looked in forbearance (hasn’t been granted yet, and it’s a one-time only option and for 6 months); I’ve look into refinancing, which leads to much higher interest rates and higher payments that are above $345.00 a month with all other vendors I’ve spoken with; my co-signer has proven he cannot make the payment the bank is expecting; and a bankruptcy lawyer said due to current federal law and texas state law (my husband is stationed in texas for military, and since we’ve been here 2 years we have to go off texas law apparently even though our license are still from our home states), that my private student loan cannot be discharged or forgiven in court via a Chapter 7 or Chapter 13 bankruptcy (and yes, for all other debts I’m pursuing Chapter 7 within the next few months). Wells fargo has said if the forbearance is approved, and we do not pay the payment on time after that 6 months, they will put it into collection, and likely sue if my co signer and I cannot pay collection or the bank for the loan at that time. They also said, even with bankruptcy once I start the process and its granted, the bank will not lower the payments, they will still send it to collection and go after me in court, even though bankruptcy proves 100% that I have no income, no assets, no property, couldn’t pay off any of my other debts, and no employment, and no means to pay them.

    In this type of situation what are the logical options, if there are any left?

    My federal loan servicer for my federal student debt is working with me and doing income-driven payments which have a high chance of being $0.00 per month as they know I am not employed and they also know I’m having difficulty obtaining employment of any kind. So not worried about my federal student loans, at least that loan servicer is willing to work with me, has more options and programs to offer, and is understanding thank god on that one.

    An opinion an guidance on my private student loan would be greatly appreciated. I’m terrified once it goes to collection it’ll end up in court, and they will still sue me, despite the fact that I’m pursuing bankruptcy and even without bankruptcy can prove I cannot make the payment. Wondering if there are any options out there that just aren’t discussed with the common public or something like that.

  2. Annie Clarke

    September 13, 2018 at 4:58 pm

    Hello Steve,
    I was an international student when I studied in the US between 2005 & 2009. I received part scholarship and covered the remaining tuition balance with Sallie Mae, now Navient, private student loans. At the end of my studies I had $100+k debt. After I graduated and for a several years following my return to my country I made repayments on my loans. However, I only could have afforded to pay the minimum interest and so payments didn’t even dent the principal amount. Several times, I underwent financial hardship where I had to request forbearance on my loans.

    However, two years ago 2016, it became excessively difficult for me to repay my loan.
    I explained to my loan service provider that I had come upon financial hardship, that I couldn’t find nor pay the smallest of amounts they suggested. They claimed to have made a note of this. However, on several occasions I was bombarded with phone calls, known and unknown numbers, with the possibility of being sued and/or having to settle to pay a lump sum amount.

    I had enrolled in school upon my return to my country and the great financial constraints I encountered forced me to take a leave of absence from school on 3 occasions. I also came to learn that my school could not make me eligible for in-school deferment either. I am just now finishing up my schooling. The job force in my country is significantly challenging with unemployment rate at an all new high. Foreign exchange rate is $140: $1USD, which additionally makes it even harder to pay on my US loans.
    I have no other option but to default on my loans. It is not for lack of trying; I just cannot afford to repay.

    Do you have any advice for me? I’d appreciate your insight.

    • Steve Rhode

      September 14, 2018 at 9:36 am

      It is what it is. Sounds like the decision to default has been made for you from external sources.

  3. Kate Scowsmith

    August 11, 2018 at 11:45 am

    I have a private student loan that defaulted and has been taken over by a debt collector. The original loan amount was $10k, I paid on it for years and never made a dent on it. I went to graduate school, couldn’t afford the monthly payments and it defaulted. The debt collectors now want to settle for $7k. I don’t have that, nor can I get it with my credit score (which I’m trying to recover). I don’t want to burden family with this, and it has been enormously stressful to deal with while working full time. I’ve looked into other loans to pay for it, as I can do monthly payments, but the loan options haven’t been fantastic. I’m terrified they will garnish my wages or go after my retirement. I’m in California. What are my options?

  4. Billy Bob

    February 28, 2018 at 10:02 pm

    I have a 4 private student loans with AES currently 44 days past due and climbing. I cannot afford the payment. I don’t have enough equity in my assets to pay off the debt as it is 145k and climbing with daily interest. I defaulted and haven’t paid one penny towards the debt. I believe the statute of limitations law is 6 years in the state of AZ where I live, but what should I do in the mean time with any collection calls or calls from the lender or letters until they possibly sue me and subpoena me to court?

    I’ve done a tone of research and I know they can’t garnish my wages or take my house and that I have 18 months to re invest any of the proceeds from the sale of my home back into the market without them taking that if and when I do sell it.

    Best case scenario I’m of course hoping the debt will magically ride away on a unicorn, but in reality I know that somehow someday I’m going to be more than likely sued and stuck facing this giant somehow in court. What should I be doing now is the question to prepare for that as they of course will not negotiate the payments to be within reason nor the interest as it currently stands. Which why would they they have the upper hand I get that.

    I went to school during separating from active duty in the Air Force and while being in the Air Force Guard to be a helicopter pilot on a 70k private student loan from a company in 2007 that gave me that loan while being a waiter making a little over 3 dollars an hour at the time. Thankfully I don’t have cosigners to pull into my little world of financial hell, but heres the scoop. I wasn’t able to finish the helicopter pilot program which would have been roughly 120k in total as there were quickly sucking the money up in my accounts. Yes the school is a reputable school and they are still in business today, but I don’t have anything to show for it accept a private student loan and a private helicopter pilots license in my wallet I can do absolutely nothing with and now with interest my life has been forever handicapped financially for the last decade after and I’m sure for the rest of my life. Please help. Any ideas other than the lottery or calling President Donald Trump for help. Maybe some interest off the top of one of his gracious accounts that would be a sweet write of for him. lol = D jk, thank you Mr. President

    • Steve Rhode

      March 1, 2018 at 9:10 am

      If your loan is for a flight school, the majority of those were not FAFSA recognized and the private student loans are dischargeable in bankruptcy.

  5. Akewataru

    October 5, 2017 at 7:17 am

    I have approximately $43,000 in private student loan debt with Navient. My in school deferment time (48 months) is up and they are demanding payments. I’m still a full-time student and will be so for the next several years. Would refinancing the loan and then deferring under the refinance loan terms be a good ideal? Does this even exist?

    • Steve Rhode

      October 5, 2017 at 10:12 am

      You realize that by deferring your loan you are just massively increasing the balance, right? You are making an unaffordable loan even more unaffordable. I’m aware of private student loan lenders but I’m not familiar with people who would refinance and defer the new note.

      When it comes to private student loans they offer none of the benefits that a federal student loan does. No income based repayment plans. You will have to talk to Navient about what they are willing to do and if that is unaffordable you may have to look at realistic options like defaulting and dealing with that in one way or another.

  6. Crystal

    September 26, 2017 at 3:41 pm

    Steve,
    My husband graduated in 2006 and ended up with $116k in federal and (mostly) private loans. His parents cosigned and have since divorced. His mom had filed bankruptcy and is currently unemployed. His dad makes a decent amount of money but has his own bills to pay since his mom filed bankruptcy against them. They also cosigned for his middle brother who has a hefty amount of loans himself. He and I were not married at the time and everything we have now (our house, utilities, our vehicles, credit cards) are all in my name. I also have student loans of my own.
    He is making approx. $33k/year (not using his degree). His take-home every 2 weeks after health insurance and taxes are taken out is around $675. His student loan payments are just under $800/month. He’s talked to the loan company but they aren’t willing to work with him and his loan payments just keep going up. He’s not even paying on the federal right now (deferred).
    I’m desperate and worried we’ll never have them paid off. Do you have any advice? We live in Iowa. Do you know of any options we may have? He doesn’t want to avoid paying because he’s worried about it hurting his parents. But right now it’s hurting OUR family. I’d like to be able to help our kids out someday. Thanks

    • Steve Rhode

      September 27, 2017 at 9:43 am

      Quick response: His parent who cosigned the loans is 100% jointly responsible for for the loans as well. Any default on a cosigned loan will also impact the cosigner. You really need a bigger plan of action that can move you all towards a common goal. I would suggest making an appointment with my debt coach friend Damon who can assist you with this. See http://damonday.com

  7. Yuliya McCallum

    September 16, 2017 at 12:53 am

    Steve,
    I graduated with a non credited degree ( at that time i did not know it was non credited until my 3rd year in school). A little background: I came as a refuge to this country with an I94 and I was never aware of anything that is credited or non credited, I had no idea what interest rate is and on. My mom spoke worse English then me, and she had to cosign all these loans because I did not qualify myself. To fast-forward, I graduated with 80k loan and later found out that I can’t even use any of my credits to pursue higher education. I had to start from scratch at a community school that did not take one credit. I could not find a job in my field either after applying everywhere. So I ended up going back to school, starting from scratch while my loans were deferred. 4 years later, my loans are at 120k. Navient is now saying I am supposed pay 1000 a month for 30 years. All this is too crazy and unreal. But it is true. My question is: my mom is on the loan.. is there anyway to get rid of this without affecting my mom? What are my options and what do I do?
    Thank you

  8. Chris

    September 15, 2017 at 5:56 am

    Hi Steve. I came across this article as I was eyeing my Navient account, which is set on auto pay of ~$134 on my $12k+ loan. It’s affordable for sure, but also insane that I pay just as much in interest every month as I do in principle.

    Unlike many, I am fortunate enough to be able to pay. My original loan taken out in 2007 was ~$17k and my parents told me at the time they would pay for that loan because I ultimate switched schools and would take on debt from the new school. Well, they ended up not telling me they hadn’t touched it so I graduated with $25k from the second school and now $24k after interest grew for a few years on that first one. Welp.

    The first loan got transferred to navient and is all that’s left. I’m tired of paying them, though, since it is basically robbery at this point, and am considering the option of just not paying anymore.

    How much of an effect will it have on my credit? Do you think I’d have a decent chance at negotiating a settlement/lump sum?

    • Steve Rhode

      September 15, 2017 at 2:06 pm

      Every situation is different. It will impact your credit and open you to legal exposure. An intentional default is always a better solution when you can’t afford the payment instead of not wanting to make the payment.

  9. Bryan

    September 13, 2017 at 5:12 pm

    Hi Steve
    I graduated from the now defunct Brooks Institute about 10 years ago. Shortly after graduation, unabled to consilidate the loans to a reasonable payment, as the school loan officer assured me I’d be able to do, I soon defaulted on the loans when I was unable to make the payments that added up to several thousands of dollars monthly. Since then, assuming my credit was tanked, I’ve completely avoided it. I’ve never had a credit card, or signed a lease for an apartment. Well recently, after deciding to finally try to tackle these issues from my past, I ran a credit report to see where I stood, and to find out who owned my debt. Well to my surprise, there was NOTHING on my credit report. This baffled me, so I called the three big credit agencies to confirm that all was showing up online, and they confirmed it. According to them, I have no credit history, positive or negative. To them it looks like I’m a newly 18 yo just starting out in the world. Occasionally I do get a call from a collection agency, but appearently none of them are reporting. So what does this all mean? Did I somehow escape?

    • Steve Rhode

      September 13, 2017 at 6:02 pm

      I’m assuming this is private student loan debt. It sounds like the debt is now outside the Statute of Limitations and they’ve just written it off. After 7.5 years it is no longer reported on your credit report. The big issue now is to make sure you do not acknowledge the debt with any collection company nor make a payment on it. It will bring it back to life.

      Keep in mind, just because the debt may be outside the Statute of Limitations does not mean they can’t try to collect on the debt or even sue you, it’s a defense you can raise if they come after you.

      It’s time to build some credit. Read https://getoutofdebt.org/32410/how-to-easily-rebuild-your-credit-and-have-good-credit-again

  10. Tia

    September 7, 2017 at 6:16 am

    HI. In 2008, three private loans were taken out for school. I had never been able to pay on them(I could never get a job in my field), and my cosigners never paid them anything at any time. The lender is threatening to take legal action now, in 2017. I talked to them and told them I surely fall under the statute of limitations after 9 years (In California, the SOL is 4 years). They said my loans had forbearances for a while and were only charged off in 2015, after I failed to make anymore payments. I or my cosigners NEVER paid them anything. I asked them who had made any payments, thinking some kind anonymous soul was making payments on my behalf. They could not give me any answer other than they think it was either me or a cosigner. I asked for proof and all they sent was a statement /history of payments made from 5-31-2014 to 6-29-15. It had no other details, not even how the payments were made. It seems very convenient for them, because payments would nullify the statute time frame- but even with their “alleged” payments, I or my cosigners never signed or agreed to any payments to reconstitute those loans! There’s a provision of CCP 360 that says if the statute of limitations has already run, payment does not revive the debt and make it enforceable again. How do I know if they themselves simply hadn’t made some random payments towards the accounts to reset the statute of limitations? Thank you

    • Steve Rhode

      September 7, 2017 at 3:36 pm

      How do you know? You make an appointment with an attorney who is licensed in your state and get a legal opinion.

  11. Jane

    August 19, 2016 at 1:38 pm

    Steve, my school (Silver State Helicopters) closed before I graduated and basically took my money. They filed bankruptcy, but I don’t have that option. The loan company SLX settled with students, but I feel that I didn’t get what I signed up for. I’m still paying $300 a month for nothing. I’m afraid to stop paying. The loan is now with AES. What do I do? Its killing me and now I have additional $10,000 in debt because I have used my CC’s to keep me going. Feel like I’m digging out of a sand pit, I can’t ever get on top because the side keep caving in. Help please, thanks~ Jane

    • Steve Rhode

      August 19, 2016 at 6:05 pm

      What state are you in?

    • Ronda

      July 27, 2018 at 12:22 pm

      Jane have you figured anything out with this loan? I’m in the same situation please contact me

  12. Luis Barros

    August 19, 2016 at 12:35 pm

    Well we the tax payers bailed out the banks and carmaker/big businesses , also we give money to other countries with our tax money (even to countries who hates what this country represents), so as a tax payer I don’t mind if people won’t pay back their forced student loans, the richest country in the world where people have to pay to go to college….nice.

  13. Steve Rhode

    June 3, 2016 at 5:01 pm

    Good points. I addressed most of them in https://getoutofdebt.org/98010/defaulting-private-student-loans-not-crazy-sounds

    Look at the discussion on how this is a multifaceted issue and not a good guy / bad guy thing.

    Keep in mind, private loans are entirely different than federal loans.

  14. nick

    January 14, 2016 at 9:14 pm

    Steve,

    What about the Education they received for $150k. They should just get