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13May
2015

A Comparison Between Private Student Loans and Federal Student Loans

Many student loan borrowers are confounded by the differences between private and federal student loans. Unfortunately, it is a much more difficult situation for borrowers with student loans that are private. The federal regulatory framework that exists and governs federal student loans simply does not exist for private student loans.

This of course makes it more difficult for student loan borrowers in a number of respects. If the borrower feels that his or her monthly payment is too high, there are not repayment programs (as on the federal level) to decrease the monthly payment. The borrower and his or her counsel if that is the case must simply try to instill some goodwill into the private lender to see if a lower monthly payment may be obtained through a policy or practice of the private lender.

Additionally, some private lenders do have forbearance and deferment programs but they are not mandatory as many are on the federal level. Of course, it goes without saying that the private lender has absolute discretion as to whether to grant or deny a forbearance or deferment request. But a student loan borrower should not be hesitant in requesting a deferment or forbearance and the assistance of counsel in this regard may prove very fruitful.

Further, there are no limitations imposed upon debt collectors (other than those imposed by the Fair Debt Collection Practices Act) who are retained by private lenders. On the federal level, regulations specify the exact parameters of how the debt collectors must act. With regard to private loans, there are no such limitations.

Finally, there is one benefit to a student loan borrower who is defending against a lawsuit brought by a private lender. Unlike federal student loans, a borrower on a private loan may assert a statute of limitations defense. That defense is not available on the federal level. So, if the private lender waits too long to bring the case, the student loan borrower may very well be able to avoid liability by asserting the statute of limitations as a defense. Of course, in most statute of limitations situations, it will be essential that counsel is utilized.

All in all, the terrain is much harder to navigate for a student loan borrower with private student loans. Yes, there is self interest in me saying this, but often counsel can help borrowers cope with these difficulties.

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