With college costs continuing to increase and job openings not keeping pace, it’s little wonder so many students wind up defaulting on their student loans. The Federal Education Budget Project reports that default rates have average about 13% for federal loans and 7% for private loans. The 2015 predictions are somewhat better, but even so many students are likely to slide into default either from lack of knowledge, resources, or concern. Default is never a good thing, but private and federal loans are not created equally in this regard. Here’s what you need to know.

PROTECTIONS FOR STUDENT LOANS

Both the government and private lending institutions will let you borrow money for your education, but they most certainly want it back. When you’re not able to make the payments, you can eventually slide into default. Forget Student Loan Debt states that one of the biggest relevant differences is that federal student loans have a required nine month waiting period before you fall into default. With private student loans, you can be considered in default as soon as you miss a payment, depending on the terms of your agreement. Additionally, the federal loan providers must allow for various repayment programs including forbearance, deferment, income based repayment plans, and so on. Private student loans can offer such programs, but it is not required.

Once in Default

One of the things that all federal student loans and most private student loans share is that they cannot be discharged through bankruptcy. Once you go into default, your creditors will still want their money. Here forms another key distinction between federal and private lenders. Private lenders will generally go through the following stages

• Notify you that you’re late
• Attempt to collect the money themselves and add additional late fees
• Turn the debt collection over to external collection agencies
• Report you to credit reporting agencies
• Take you to court for breach of contract
• Request wage garnishment from court
• Set up financial levies and property liens from court

When it comes to defaulting on federal loans, the process is far shorter. The federal government will

• Notify you that you’re late
• After nine months, declare you are in default
• Report you to credit reporting agencies
• Automatically enforce wage garnishments, financial levies, and property liens without going to court, taking up to 15% automatically and withholding tax reimbursements and so on

Defaulting on your student loans can be devastating for your credit score, your financial situation, and your future options. Federal student loans will offer you more options before you go into default, allowing you to tailor your options and even defer payments so long as you let them know in time and follow their requirements. Private lenders aren’t required to offer additional options for repayment. However, private lenders do have to demonstrate the validity of their loan and request permission from a court before getting wage garnishments, financial levies, and property liens. The federal lenders don’t have to do this. Once you are in default, they don’t have to take you to court. They can get the garnishments enforced as soon as you are in default.

It can be quite disconcerting when this starts happening, but you don’t have to go through it alone. Consider talking with an attorney at Van Horn Law Group to guide you out of this mess.