The sad reality for most of my student loan clients is they have large federal and private student loan balances. In many cases they also have co-signors, usually a parent or relative, who will be on the hook if the main borrower defaults. Federal loans can be consolidated and placed in affordable repayment plans, but private loans are usually another story. That said, there are options for dealing with private loans, even if you are in default.
(1) Check your Statute of Limitations period (“SOL”). All states have SOL deadlines for creditors to file collection lawsuits. If the SOL has expired on a private student loan, the creditor is out of time to sue and obtain a judgment unless you make a voluntary payment to extend the SOL period (federal student loans do not have an SOL). If sued after the SOL has passed, you still need to raise the defense before your creditor will dismiss its lawsuit or a judge will enter an order or judgment declaring the debt barred by the applicable SOL. The SOL usually runs from the date of default on your loan.
(2) Challenge standing. Many private student loans are purchased by third parties like National Collegiate Student Loan Trust (“NCSLT”) that then hire debt collection firms to recover the debt. When challenged on its legal standing to recover purchased debt, NCSLT often struggles to produce sufficient paperwork to show the transfer from your original student loan creditor to NCSLT. That gives borrowers great leverage, especially if they are being sued by NCSLT, to negotiate affordable repayment terms and partial loan forgiveness, or, in extreme cases, avoid repaying certain student loan debts altogether.
(3) Undue hardship discharge. Use the U.S. Bankruptcy Code to obtain a full or partial discharge of your private loans or reach a settlement that offers partial loan forgiveness and affordable repayment terms. If you received a prior bankruptcy discharge and listed your student loan debts in your bankruptcy case, you can reopen the case and file a complaint to have your student loan debts discharged due to an undue hardship. If you are already in a bankruptcy or need to file one to address other debts, you can still file a complaint for a hardship discharge and/or use the lawsuit to leverage favorable payment terms for your private debt.
(4) Get help. As noted above, even if your loans are in default, you have options. Avoid the urge to panic and get experienced legal help, the sooner the better, to fully evaluate your circumstances. Chances are you and your co-signor will both sleep better knowing your private student loans have been addressed in an effective and affordable manner.