Worried About Keeping Up With Your Private Student Loans? Here's What to Do.

Private student loans are sometimes an attractive option because of their low-interest rates, but these rates come with far fewer protections than federal loans with higher rates. When you don't find the high paying job you thought you would or the economy prematurely pushes you out of a highly paid position, you could quickly be facing a private student loan default that could potentially ruin your credit. Here are some steps to mitigate the damage.

Have Your Cosigner Released

You should always try to have your cosigner released as soon as possible no matter what your current financial situation is. If you default, your cosigner will be on the hook for the remaining balance, and there have even been horror stories of cosigners having to pay when the borrower died in a tragic accident. Many lenders will release a cosigner once you've established a positive payment history and/or land a permanent full-time job. To protect your cosigner, request their release as soon as you meet the criteria.

Avoid Variable Interest Rates

Variable-rate loans are attractive when interest rates remain near zero, but there's a big tradeoff for receiving a slightly lower starting rate than fixed-rate loans are currently providing. Low-interest rates aren't guaranteed forever, and if rates rise to 10 or 20 percent or higher as seen just 10 to 20 years ago, the increased payments on a variable-rate loan could be financially crippling. Don't select a variable-rate option when entering repayment, and if you are on a variable-rate loan, refinance to a fixed-rate loan while interest rates are still low.

Ask for Deferment or Forbearance

While private lenders don't offer as many deferment or forbearance options as there are with federal loans, they still may be available if you are looking for a job post-graduation, enroll in graduate school, or are temporarily unemployed. If your payments are a burden, call your lender and ask what options are available. Just be aware that interest will generally continue to accrue, especially if the loans are put in forbearance.

Ask for a New Payment Plan

Most private student loans default to a ten-year repayment plan. While private loans don't qualify for the federal Pay as You Earn or Income-Based Repayment plans that forgive any remaining balance at the end of the loan term, private loan terms can still be extended to reduce the monthly payment. Note that you will end up paying more interest over the life of the loan, and your interest rate may also increase if you select a longer loan term.

Set Money Aside Even if You're Not Making Payments

If you can't make your monthly payment, put whatever you would be able to pay into a savings account instead of making a partial payment. When you are only making partial payments, your payment history will still show as late, your credit report will still be impacted, and the lender could declare the loan to be in default. However, partial payments continue to extend the statute of limitations on the loan so the lender could continue to collect on the loan indefinitely.

If you're making no payments, the lender will begin moving towards a lawsuit and a judgment before the statute of limitations expires. When they threaten to do so, offer to settle the loan for whatever you were able to save. If they don't accept your offer, you'll be in the same position as if you had been making partial payments but with a little more money in the bank.

Don't Bury Your Head in the Sand

Above all else, don't simply ignore the problem. If you ignore payment notices, demand letters, or notices of lawsuits, your credit will be ruined, a judgment will be entered against you, and your wages or property may be garnished. While these things are still possible, being proactive will at least give you a chance to settle the loan for less than you owe or reduce the damage to your credit report.