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Covid-19 Stimulus Package: Private Loans

What is a Private Student Loan?

A private student loan is a loan originated by any bank, credit union, or even a guarantee agency. It is NOT insured by the US Education Department (USED). And of course, it is not originated by USED. It’s no different than any other loan you would get from a bank, with one major difference – it is not necessarily dischargeable in bankruptcy. The promissory note will often state it is a “student loan” to be used for educational expenses, which includes tuition and living expenses. Many contain a statement that it is not dischargeable in bankruptcy. Often a co-signer is required because these loans are underwritten based on credit criteria. Federal loans rarely require credit.

Private loans do not offer flexible repayment plans based on income. They do often allow two or three years of forbearance.

Private loans are subject to Federal laws such as the Truth in Lending Act. They are also subject to State laws like Creditor Collection acts. Most importantly, the State Statute of Limitations applies (the time limit to file a lawsuit to enforce the promissory note if defaulted).

Further, just because the promissory note references not being dischargeable in bankruptcy, doesn’t mean that’s always true. This is only something to explore if you’re planning to file bankruptcy for other reasons. Filing just to deal with a student loan is not always the best course of action.

Stimulus Help?

Unfortunately, the stimulus package does nothing for private student loans. While some banks are offering extra forbearances and/or waving late fees, it is completely discretionary. For more information, contact your lender.

If you need further assistance with your private student loans, it may be wise to contact a student loan lawyer licensed in your State. Find one here.