The problems with private student loans

Private student loans do not have the same range of powerful collection tools as the government.  Generally, they hire third-party debt collectors to pursue borrowers.  As such, they are subject to fair debt collection laws.  Private loan creditors can sue on defaulted loans and obtain a judgment and then employ traditional debt collection tools such as wage garnishments and bank levies.

That being said, private loans are still subject to the heightened bankruptcy dischargeability standards.

Unlike the federal student loan programs, there is no comprehensive federal law requiring private student lenders to offer particular types of relief or flexible repayment.  Private student loan borrowers are generally at the mercy of their creditors.  To that end, private lenders have been generally inflexible in trying to assist financially distressed borrowers.

Deferments and Forbearances

Most lenders provide an in-school deferment option.  However, interest usually accrued during the deferment period.  Now, many lenders are requiring that borrowers pay interest while in school.

Lenders may offer forbearance plans, but borrowers must affirmatively inquire about such plans and many private lenders that do offer such plans charge fees for forbearance requests.

Defenses if You are Sued

General contract defenses – forgery, mistake and fraud, for example – are available to challenge the enforceability of the loan agreement.  Statute of limitations defenses are also allowed for private loans (but no government loans).

A borrower can also sue a lender and/or the lender’s collection agency for unfair debt collection practices.  This won’t eliminate the obligation to pay the loan, but it may give the borrower leverage in negotiation as well as a set off against the amount owed.

Also, private lenders are subject to certain truth in lending disclosures.  Failure to meet such disclosures can give rise to a private cause of action against the lender

If you are having financial difficulty with a private education loan, please contact the Zarcone Law Firm at 619-800-3082 for a free consultation.


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The content found on the financialfreshstart Blog is not legal advice and is purely for informational purposes. The Zarcone Law Firm does not guarantee the accuracy, integrity or quality of submissions. The information provided by the bloggers on this site may not represent the opinions of the Zarcone Law Firm or its affiliates. The information contained herein is not a substitute for the advice of an attorney.

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