Right now if you have federal student loans there are good options to help lower or eliminate your monthly payment. To see those options, click here.
But what about when your private student loan lender won’t work with you. What are your options?
Well one of the options is to stop making payments on that unaffordable student loan. If the lender isn’t willing to work with you and you simply can’t continue to make payments, maybe you should just stop making payments. I know it sounds crazy, but listen to what attorney Greg Fitzgerald from California had to say about that. Greg can be found at . It’s not as crazy an idea as it first sounds.
1. There is a statute of limitations on private student loans. At some point, the creditor must decide to sue you or lose the ability to force payment from you. The sooner you stop paying, the sooner this time will come. If you get sued, see #7 below. If you don’t get sued, you will not have to pay anything. Not all private student loans get sued on.
2. If you are making some type of payment and the balance is not going down, you will owe the balance- FOREVER.
3. So long as you are making payments, no private student loan creditor will seriously negotiate with you to reduce the interest, let alone the principle amounts
4. The FDCPA (Fair Debt Collection Practices Act) and the RFDCPA (the CA state law version) DOES apply to private student loans.
5. The loan may be dischargeable in bankruptcy (not usually, but it does happen).
6. Your loan may be sold to a debt buyer. In fact, it may be sold several times. Your chances of success (defined as paying less than 100%) increases dramatically.
7. If you are sued: First, do not assume they will win. Second, they are not going to be able to force any payment from you until after: a) they win the lawsuit (get a judgment), AND b) enforce the judgment. This process can take several years and will motivate the creditor to negotiate. Third, we are finding the court forum is better for realistic payment arrangements or lump sum settlements than attempting to negotiate with a collector.
8. Save your money and use the time value of money on your side. $200/month saved will grow to over $7,200 in 3 years. Cash is king and will get you discounts.
9. Paying a private student loan before setting aside a small rainy day fund will leave you unprepared for life’s inevitable emergencies (which if you don’t have the money for will only cost you more as you borrow more).
10. The laws may actually change in your favor.
Greg shared some excellent reasons why you might want to just stop paying on your private student loan. Keep in mind if you stop paying and the statute of limitations expires and they don’t sue, those loans can now be easily discharged in bankruptcy. But don’t forget that some private student loans can be eliminated in bankruptcy right away. Read this.
If the do sue you and the loans have been sold or transferred more than once, there is a good reason to suspect the current loan holder won’t be able to properly validate the loan if you push them to. If they can’t, then the whole issue may go away and the debt may be unenforceable. See this article and this one for more on how to validate the debt.
Don’t get me wrong, not paying on your private student loan has serious consequences. Not only will it negatively impact your credit score, but your balances will increase, and you could be sued.
But at some point you have to consider what your options are of heading down the dead-end path and limping along making minimum payments.
So let’s say you are just making minimum payments and that leaves you unable to save for your retirement or build an emergency fund. Not only are you sacrificing your retirement income, and that’s money you will absolutely need, but you are also setting yourself up for trouble in an unexpected financial time. It’s financial suicide to not have an emergency fund and it is ridiculous to have no retirement savings so when you are old and can’t work, you’ll be broke. If older you could kick the ass of younger you, they would.
Don’t rush to start skipping payments. If you do decide to do that, make sure it makes sense and you have worked out a plan of action in advance. If you need some help to figure this out, ask me your question and let’s get you headed in the right direction.
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.