Sallie Mae Charge Off: What It Means and How to Handle It

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A Sallie Mae charge-off occurs when you’ve fallen significantly behind on your private student loan payments. Here’s what you need to know:

• Definition: Sallie Mae writes off your loan as a loss on their books, typically after 120-180 days of missed payments.
• You still owe the debt: Despite the term “charge off,” you remain legally obligated to repay the loan.
• Account status: Sallie Mae will likely close your account and may move your student loan debt to its internal recovery unit. This will change its relationship from being your loan servicer to a debt collector. It could also sell your debt to a collection agency.
• Different from default: Charge-offs on private loans can happen more quickly than defaults on federal loans (which occur after 270 days of non-payment).
• Last resort: Sallie Mae prefers to find payment solutions before charging off a loan. While those options won’t include income-based repayment plans like the government offers with federal student loans, they may include an interest rate reduction deferment or forbearance.

Immediate Consequences of a Sallie Mae Charge Off

When Sallie Mae charges off your loan, several immediate consequences come into play. Understanding these can help you prepare for what’s ahead and take appropriate action.

Credit Score Impact

A charge-off delivers a severe blow to your credit score. This negative mark can cause your scores with all credit bureaus to plummet, potentially by 100 points or more. The impact depends on your credit profile, but it’s significant regardless.

Duration on Credit Report

The charge-off will remain on your credit report for up to 7 years from the date of the first missed payment that led to the charge-off. It can make obtaining new credit, securing favorable interest rates, or even passing employment background checks difficult during this time.

Legal Obligations

But don’t be misled by the term “charge off.” You’re still legally responsible for the debt. Sallie Mae, or a debt collector, can continue to pursue payment through various means.

Wage Garnishment Process

Unlike federal loans, Sallie Mae can’t automatically garnish your wages. But they can sue you to obtain a court judgment. If successful, they may then be able to garnish your wages. In California, for example, wage garnishment is capped at 25% of your disposable earnings or the amount by which your disposable earnings exceed 40 times the state minimum wage, whichever is less.

Impact on Professional Licenses

Some states allow creditors to petition for the suspension of professional licenses if you default on student loans. But this typically applies to federal loans, not private loans like those from Sallie Mae. In California, for instance, no law allows the revocation of professional licenses due to private student loan default.

Collection Efforts

Expect increased collection efforts. When private student loans go into collections, you’ll likely receive frequent calls, emails, and letters from Sallie Mae or a collection agency. They may offer settlement options or payment plans, but be cautious and understand your rights before agreeing to anything.