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Should I Just Default on My Private Student Loan Debt to Settle Again?

Written by Steve Rhode


Dear Steve,

I took out private student loans in 2007 to attend a two year performing arts conservatory, 42k total. I defaulted on the loans, but because they are private, did not have access to a rehabilitation period. They were immediately due in full and I of course did not have money to pay them. They were put into collections as two separate disbursements, so I always had two separate collections agencies calling about the loans. I was sued for one disbursement.

On the day I was served, I contacted the lawyers representing the original creditor, settled, and have been making affordable monthly payments for over a year. The loan is no longer in collections on my credit report. The second disbursement has been appearing and disappearing as an open collections account on my credit report for months, and though I make monthly payments to them, they are still calling and asking for money. My credit is stuck in the pits and as it stands, this loan will never go away. (original principle – 21,000. Currently due – 36,000)

Is my situation with the first law firm common? If I stop paying these collections agencies and eventually get sued, is settling out of court generally as easy as it was for me the first time? It seems that it’s my only option to get this off of my credit report. I don’t own anything of value (I lease a car, I rent an apartment) and therefore can not get a secured loan to pay back a large portion of the debt. Your insight is greatly appreciated. Thank-you so much.



Dear Angelina,

When sued by a private student loan lender and represented with the facts or a competent attorney, many people win favorable repayment plans or settlements with reductions in the amount owed. But it’s often emotionally tough to get to that point, have defaulted payments appear on your credit, and deal with possibly being sued.

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However, if you read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan you will find why for some people it is not a crazy strategy.

What would be good to discuss with a knowledgeable attorney in your state would be what the statute of limitations is regarding this debt. If you default and it extends past the statute of limitations, the lender may sue you but you could raise the out of statute debt as a defense. They would not be able to proceed.

Another reason to speak with a knowledgeable student loan attorney would be to determine if your private student loans are even protected in bankruptcy or could be discharged.

Additionally, if you default and become about 180 days delinquent, some private lenders do offer settlements. See this article. I guess what I’m trying to say is that defaulting does not equal being sued. It can also lead to a settlement at times.

The issue regarding the account appearing over and over is really something you can dispute with the credit bureaus that are reporting it. While you may be making payments, the issue on the second loan is if you are behind. If the payments you are making do not satisfy the past due debt then that could be one explanation why this keeps bouncing around. More information is needed on this.

I’m not sure about “getting this off your credit report” using a default strategy. Ultimately your credit report should contain a true and accurate reflection of your status. If the debt is resolved with some settlement or payment plan, your past collection activity and default status can still be reported.

However, you should be actively engaged in improving your credit to bring your score up, even with a collection account. Check this and this to do that.

About the author

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.

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