Private student loans provide fewer benefits than federal student loans, such as income-based repayment plans, deferments, and student loan forgiveness. In many cases, you only have 6 months (up to 12 if you are lucky) before you are required to start making repayments on your private student loan. Often, you are still in school and are limited by finances to afford your loan payments. As a result, you can end up in collections sooner than if you had a federal student loan.
Although ending up in collections can put you in a bad spot either way, there are a few differences when you default on a private student loan and it goes to a collection agency than if you had a federal student loan go into collections.
Here are some of the differences and similarities of private student and federal student loan collections:
- You could settle your private student loan debt
You see, federal consolidation isn’t exclusive for federal student loans. Refinancing is the same process which will also aid you to get out of collections and default. Through refinancing, you safeguard a new loan to pay for your previous loans. Although, with a loan default on your credit history, you may need a cosigner to help bail you out.
- Private lenders can’t take your tax return
Your collections agency, loan agency, credit union, or bank can’t offset your tax return to cover your outstanding loan balance. Nevertheless, your lender could seek court approval to gather funds from the bank account via non-wage garnishment.
When you go through non-wage garnishment, the lender can suspend the money in your bank account that may consist of your tax return and even your savings.
- Loans enter collections and default quicker
Federal loans commonly take 270 days of non-payment before it becomes the default. On the other hand, private student loans take only 120 days. That denotes you could come into collections faster and have less time to get caught up on payments.