Federal vs. Private Student Loans

: Chris Lee Law Firm

  Filed under: Student Loans

student loan debtDefaulting on student loans is serious business that has forced many college graduates into bankruptcy. While filing for bankruptcy may be able to alleviate other debt troubles, student loan debts are generally not dischargeable in bankruptcy. This makes matters tough for those who paid an arm and leg for a college education only to find themselves unemployed or underemployed. Unfortunately, the problems don’t stop there.

Federal vs. Private Lenders

Depending on what type of student loan you have, you may be facing different consequences for defaulting. Generally, private student loan lenders tend to be tougher to deal with an offer fewer concessions that a federal loan lender, but federal lenders have an easier time collecting than private lenders. For example, defaulting on a federal student loan can result in wage garnishment much faster than with a private lender. The reason is that federal student loans are guaranteed by the government, which allows them to obtain a garnishment order much easier. It is not uncommon for a federal student loan lender to garnish up to 15 percent of a debtor’s wages in order to collect on the debt. However, federal loan lenders do offer more repayment assistance plans than do private loan lenders for debtors who are serious about repaying their debts.

Private loan lenders are considered to be more difficult because their collection efforts are less regulated. This means that each private student loan lender has a different set of collection procedures and rights. With fewer borrower protections, many debtors find that obtaining any forbearance, deferment or repayment assistance to be more difficult than with a federal lender. However, since private student loans are unsecured debts, similar to credit cards, they do have a slightly higher chance of obtaining bankruptcy protection for someone under an extreme financial hardship.



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