Skip to content

Reasons to Stop Paying Private Student Loans

Those who have federal student loans have a variety of options for handling them. When a private student loan lender will not work with a student, however, what choices does he/she have?One option, simply put, is to stop paying the loan. If a student cannot get a lender to work with him/her and loan payments are becoming unmanageable, it is not nearly as irrational an option as it may seem.1) Private student loans have a statute of limitations. Creditors must eventually decide to sue a student or otherwise lose the ability to force payments from him/her. The sooner he/she stops paying, the sooner this decision will likely be made. However, not being sued at all is also a possibility (depending on a number of circumstances), in which case no money is owed.2) If a loan’s balance is not decreasing despite regular payments being made, the balance will be owed indefinitely.3) As long as payments are being made, private student loan creditors will not seriously negotiate with students to reduce interest rates, let alone principle amounts.4) The “FDCPA” (Fair Debt Collection Practices Act) and “RFDCPA” (California’s state-law version of this act) both apply to private student loans.5) Private student loans may be dis-chargeable in bankruptcies, though this is rare.6) These loans may be sold, perhaps even multiple times, to debt-buyers.7) Choosing to pay off a private student loan over maintaining a rainy-day fund leaves individuals unprepared for life’s random emergencies, which will only cost them more as more money is borrowed.8) Saving money and utilizing its time-value can pay off in many ways. Saving $200 per month for three years will turn into $7,200, for example, and cash can be highly beneficial for large/long-term purchases.9) If you are sued, it is important not to immediately assume the opposing side will win. They will not be able to force payment from you until they win the lawsuit by receiving a judgment and enforce that judgment, which can take several years and often motivates creditors to negotiate instead. Court forums are also better for lump-sum settlements and realistic payment arrangements than attempting negotiations with a collector.10) Future changes in laws may, in fact, be for the benefit of students in these financial situations.It’s also important to remember that if one stops paying and the creditors do not sue before the statute of limitations expires, these loans can then be discharged in bankruptcy, and some in bankruptcy may be eliminated immediately. If they do sue and the loans have been transferred or sold more than once, the current loan-holder may not be able to validate it properly, in which case the debt may actually be unenforceable.Of course, not paying on a private student loan can have significant consequences; balances may increase, credit scores will be harmed, and being sued is a legitimate possibility. But a time often comes when one must decide whether to continue struggling to make minimum payments – and neglecting other areas of financial importance – or attempt to make a change with both short-term and long-term benefits.

Submitted Comments

No Comments submitted yet. Sharing your story will help others!

We are listening

We will respond to you at lightning speed. All of your information will be kept confidential.

Form successfully submitted!