Private Loan Delinquency and Default
Unfortunately, most private loan programs do not have lower payment or deferment options for when you are struggling. In their defense, they are for the most part not allowed to offer anything that would “substantially alter the terms of the loan.” This is because private student loans fall under the category of “retail credit” for which the federal Office of the Comptroller of the Currency and the Federal Trade Commission have oversight. So in most cases, it’s not that the lender doesn’t want to help you, it’s that they can’t. You can read more about these situations in this article. Usually the only thing they can offer you is to postpone payments with forbearance for a few months. This can often cost a fee of as much as $150.
Ironically, much like mortgages, once the loan is in default or charge off status (which for most private loans is at 120 days past due) the lenders have more flexibility to assist you. They are no longer restricted in offering options that may alter the terms of the loan you agreed to. Some lenders will offer a temporary lowering of the interest rate to allow you a lower payment. Others will offer interest only payments for a year. All private loans are different so your best recourse is to contact the lender to see what is available.
If you find yourself unable to pay, one strategy is to pay as much as you can, every single month while keeping the lender appraised of your situation. This shows good faith and can often prevent the lender from resorting to litigation to collect the loan. Even if you have no funds now, litigation can add significant fees to the loan and can haunt you down the road so it’s best to avoid it if possible.