Private student loans and federal student loans are entirely different legal animals. Federal loans have income-driven repayment, forgiveness programs, and federal collection tools including tax refund intercept and administrative wage garnishment. Private loans have none of these — which means they are handled more like credit card debt, including the possibility of settlement for less than the full balance.
Private Loan Default and Collection
Private student loans go through the same charge-off and debt buyer sale process as credit card debt. After default, the original lender typically charges off the account within 6–9 months, and many private loan portfolios are sold to debt buyers at significant discounts. The same FDCPA protections apply to private student loan collectors.
The Statute of Limitations
California’s 4-year statute of limitations applies to private student loans. For loans that defaulted years ago and have changed hands, the SOL may have already run — making them uncollectable in court. Calculate the SOL from the date of first delinquency, not the date of any subsequent sale or collection attempt.
Settlement Ranges for Private Loans
Private student loan settlements typically run 40–60 cents on the dollar with original lenders, and 20–40 cents with debt buyers who purchased the portfolio. Lump-sum settlements are strongly preferred. Some large private loan servicers have formal hardship settlement programs — request information about these programs in writing before making any offer.
What Settlement Does to Co-Signers
Most private student loans have co-signers — often parents. Settlement must address both the primary borrower and the co-signer. Ensure your written settlement agreement explicitly releases both parties. The Justice Foundation kit covers private student loan settlement specifically.
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