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Can the Private Student Loan Lenders Default My Son for Making Partial Payments?

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Question:

Dear Steve,

I am writing for my son who has just found out that his private student loan was put into default. My son graduated from college in 2013. Since then he has received a Master’s Degree and is working full time in another state making $30,000 per year. He has $130,000 debt for private student loans and has also outstanding loans for federal. He has been making monthly payments on all of his loans.

However, with his private loan he is only paying a small fraction of what they are asking. My mother, who co-signed for these loans, is now deceased. He is living on his own and is 25 years old and still has to pay his rent, utilities and other living expenses.

My question to you is: Can these private student loan companies automatically default him on his loans even though he has made monthly payments? What is your best advice for us on how to handle this situation?

Ellen

Answer:

Dear Ellen,

From what you describe, yes. It seems he was not making his full regular private student loan monthly payment. At least that’s how I read your information. Making a partial payment or “paying a small fraction of what they are asking” does nothing to prevent the private loan from falling further and further behind and defaulting.

If the ender sues, they can attempt to go after any value in your mother’s estate or if they discover she has passed away (sorry for your loss) then they often will accelerate the loan and make the entire payment due on demand.

At the very least here your son should consolidate his federal student loans and get on an income based repayment program. More information on that here.

On the private loans there are a number of issues that create complications or at least adjust the best path to follow. These include what school he attended and if the loans were paid directly to him.

I would suggest putting the federal student loans on an income based repayment plan to lower his payment. Keep in mind, these plans have consequences. See Why Income Based Student Loan Payments Can Be a Terrible Trap.

Once he has done that, then he can see how much he has left to devote towards his private loans. He can either make the full payment, get you to help him, or have no choice but to default.


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