What Happens If You Default On a Sallie Mae Student Loan?

In 2014, Sallie Mae ended its contract with the federal government and moved all of its federal student loans to a new student loan servicer, Navient. Today, Sallie Mae only handles private student loans. If you recently defaulted on a student loan with Sallie Mae, it means you have fallen behind on a private student loanPrivate Student LoanA student loan issued by a bank, credit union, or other private lender rather than the federal government. Private loans generally lack federal protections like income-driven repayment and broad forgiveness programs. and do not have access to loan rehabilitationRehabilitationA federal program for borrowers in default that requires nine voluntary, on-time monthly payments over ten months. After rehabilitation, the default is removed from credit reports and federal aid eligibility is restored. It is available once per loan. or consolidation to return your account to good standing. But it also means you’re not at immediate risk of wage garnishment or having your tax refund, Social Security payments, or other federal benefits taken to repay the defaulted loans. Sallie Mae must take you or your cosignerCosignerA person who signs a loan agreement alongside the primary borrower and becomes equally responsible for repayment. Cosigners are common on private student loans when the student has limited credit or income history. to court before you face the consequences of defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports.. Keep reading to learn more about what happens if you default on a Sallie Mae student loan. Note:If you’d like help figuring out a plan to deal with your student loan debt, thenbook a call to speak with me. I’ve helped hundreds of borrowers negotiate settlements for less than they owe or use the bankruptcy process to wipe out their debt.

Defaulting on a Sallie Mae student loan can have serious consequences for both the borrower and the cosigner, including:

• Damage to credit scores - Late payments added to your credit report because of defaulting on a student loan will negatively affect your credit score, which can raise the interest rate on your credit cards and make it harder to buy a home or get an auto loan in the future. Your cosigner’s credit score will also be affected.
• Full balance due - The entire loan balance becomes immediately due, including interest and late fees, through a process called acceleration.
• Collection efforts - Sallie Mae may try to recover the student loan debt through various methods, such as contacting you and your cosigner several times a day, selling the loans to a debt collection agency, adding collection fees, and, if a payment arrangement isn’t made, taking legal action.
• Loss of benefits - You’ll lose eligibility for deferment, forbearance, interest-only student loan repayment options, interest-rate reduction programs, and cosigner releaseCosigner ReleaseA process offered by some private student loan lenders that allows a cosigner to be removed from a loan after the primary borrower meets specific payment history and credit requirements..
• Legal action: Sallie Mae or a collection agency may sue you and your cosigner to recover the debt. If successful, they may garnish your wages, seize money in your bank account, or put a lien on your home.

Related: Does Sallie Mae Do Income-Based Repayment?

Different rules for loans moved to Navient

If you default on a Sallie Mae loan that was moved to Navient, you defaulted on a federal loan. In this case, the government and its collection agencies can garnish your wages immediately without a court order and take your tax refund and Social Security payments, even if the loan is no longer on your credit report. There is no statute of limitation for federal student loans, meaning that the government can try to collect on the loan indefinitely. Unlike private lenders, the U.S. Department of EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans. allows federal student loan borrowers to return their loans to good standing by making nine monthly payments on time or by applying for loan consolidation and agreeing to pay the new loan under one of the four types of income-driven repayment plans. Once your loans are out of default, you’ll qualify for different payment plans and loan forgiveness programs. You can see what type of loans you have by pulling credit reports with the three major credit bureaus and on the Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. website, StudentAid.gov. Federal student loans include:

• Direct Loans
• Federal Family Education Loans
• Federal Perkins Loans
• Stafford Loans (Subsidized and Unsubsidized)

Related: What Happens When You Default on Private Student Loans?

How many missed payments before you default on a Sallie Mae student loan?

Sallie Mae typically declares loans in default after the borrower has missed at least four consecutive student loan payments or when the account is 120 days past due. Before this, the loans are considered delinquent, and the borrower still has the opportunity to avoid default. Check your promissory notePromissory NoteThe legal contract a borrower signs to receive a loan. It sets out the amount borrowed, the interest rate, repayment terms, and the borrower's obligations to the lender. to find out how many monthly payments you can miss before the loan defaults. Related: How to Get Sallie Mae to Stop Calling

How to recover from student loan default

To get out of default on a Sallie Mae private student loan, you can:

1. Pay the balance in full.
2. Negotiate a settlement for less than you owe.
3. Obtain a discharge in bankruptcy.
4. Refinance with a new lender.
5. Wait for the statute of limitations to run out.

Paying the balance in full may not be possible for most borrowers, but negotiating a new agreement that lets you pay less than the full amount due is an option for some. Sallie Mae loan settlements typically range from 50-75% of the outstanding balance, paid in a lump sum or over several months. Related: How to Negotiate a Student Loan Payoff If you do not have the cash to pay a settlement, bankruptcy can be a helpful option. It will stop all collection efforts and give you a chance to prove that you cannot afford your loan payments and living expenses, which will lead to the debt being discharged. Related: How to File Bankruptcy on Student Loan Debt RefinancingRefinancingTaking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF. usually isn’t an option after you fall behind on monthly payments, as most lenders prefer borrowers with a good payment history, credit score, and income. However, Yrefy specializes in refinancing delinquent and defaulted student loan debt. They work with your loan holder to buy the loan and set you up with a new payment plan and a fair interest rate (usually no more than 8%) for subprime debt. Waiting for the statute of limitations to end is risky because you and your cosigner can be sued before that date. However, if you cannot afford a settlement and do not want to file for bankruptcy, you can wait and hope that the time runs out before Sallie Mae takes legal action against you. The time you need to wait depends on the applicable law and where you live. Related: Can Sallie Mae Loans Be Forgiven? Unfortunately, Sallie Mae doesn’t offer a loan rehabilitation program or let you consolidate defaulted student loans into a new consolidation loan. And they aren’t eligible for the Fresh StartFresh StartA temporary federal initiative that allowed borrowers with defaulted federal student loans to return to good standing with a simple opt-in, restoring eligibility for aid and income-driven repayment. The enrollment period ended in 2024. Program or President Biden’s debt cancellation plan announced last year. Those options are only possible with federal student loans.

Bottom Line

If you default on a Sallie Mae student loan, you may feel like you don’t have many options. But there are a few things you can try. For example, you might be able to negotiate a settlement with Sallie Mae, file for student loan bankruptcy, or refinance with a private lender. Unfortunately, none of these options will remove the late payments or default status from your credit report. To do that, you’ll need to work with a credit repair professional or wait until the credit bureaus remove the information after seven years. Book a call with me if you’re looking for ways to manage your Sallie Mae loans. I’m an experienced lawyer who has assisted many people in finding solutions for their student loans so they can achieve their goals, such as starting a family, buying a house, or retiring. Let’s talk about your options. UP NEXT:Private Student Loan Forgiveness Programs