Refinancing a loan can feel like a breath of fresh air. You often see it with a car loan or a mortgage. You trade in your old loan for a new one, hopefully with a lower interest rate and a more manageable monthly payment. It’s a financial tool that promises simplicity and savings. So, when you’re staring at a massive private student loan balance, refinancing seems like the obvious move. But is swapping one private loan for another really the best path forward? It might not be the fix you think it is.
Your Lender Can and Likely Will Sue You
When you stop making payments on a private student loan, the clock starts ticking. Unlike federal loans, which have a well-defined default process, private lenders often move more quickly. They are financial institutions, and your loan is an asset on their books. They will file a lawsuit to collect on that debt, and they are very good at it. A lawsuit can result in a court order that says you officially owe the money. Once a lender has a judgment, they have powerful legal tools to force you to pay.
A Court Judgment Can Lead to Wage Garnishment
That court judgment gives the lender the right to take money directly from your paycheck. This is called wage garnishment. Your employer will be legally required to withhold a portion of your earnings and send it straight to your creditor.
Depending on your state’s laws, they can take a significant chunk of your income, making it even harder to pay for basic living expenses. This process continues until the debt, including all the added legal fees and interest, is paid in full.
Your Credit Score Will Take a Serious Nosedive
Missing even one payment can negatively impact your credit score. Defaulting on a loan will cause it to plummet. A record of default and a court judgment can stay on your credit report for seven years. A low credit score affects your entire financial life. You’ll find it difficult to get approved for a new credit card, rent an apartment, or get a decent interest rate on a car loan or future mortgage. It closes doors and makes everything more expensive.
You Will Face Aggressive Debt Collectors
Once your loan goes into default, it is often handed over to a collection agency. These agencies are paid to recover the money and can be incredibly persistent. You can expect constant phone calls at home and at work, along with a flood of letters. This continuous pressure is stressful and emotionally draining. While there are laws about what collectors can and cannot do, the process itself is designed to wear you down until you find a way to pay.
The Debt Just Keeps Growing With Interest and Fees
Ignoring the problem doesn’t make it go away; it makes it bigger. Your original loan balance will continue to grow because of compounding interest. On top of that, the lender will add late fees, collection costs, and legal fees to what you owe. What started as a manageable private student loan can balloon into an overwhelming figure. You can end up owing far more than you originally borrowed, digging a financial hole that feels impossible to escape. Your debt-to-income ratio gets worse, not better.
What You Can Do Instead of Ignoring Your Private Student Loans
Stopping payments and hoping for the best is not a strategy. Refinancing might just be putting a bandage on a serious wound. You have other, more effective options to explore for real debt relief.
Ask for Deferment or Forbearance
Most private lenders offer some form of temporary relief. A forbearance or deferment allows you to pause or reduce your payments for a short period, usually due to unemployment or economic hardship. This can give you the breathing room you need to get back on your feet without defaulting.
Try to Negotiate With Your Lender
You can call your lender directly and explain your situation. Sometimes, they are willing to negotiate a modified payment plan or even temporarily lower your interest rate. It’s a proactive step you can take on your own.
Explore Debt Settlement
Debt settlement is a process where you or a representative negotiates with the lender to pay back a reduced amount of what you owe. Lenders may agree to this because they would rather receive a guaranteed lump-sum payment now than risk getting nothing if you file for bankruptcy later. This path can resolve the debt for good.
Deal With Student Loans in Ways That Won’t Leave You With Long-Term Turmoil
As people, we often focus on the immediate problem. The high monthly payment is the pain point, so refinancing to a lower payment feels like the solution. We risk the long-term complications of a new loan commitment in the hope that our financial situation will improve in the future. This short-term thinking can trap you in a cycle of debt.
You have paths available that can lead to a genuine resolution. If you’re looking to deal with student loan debt and want to review your options, reach out to McCarthy Law for assistance.