The student loan debt crisis has worsened over the last decade, with an average balance of more than $30,000. If you’re struggling to keep up with your monthly payments, you may be wondering, “Can you settle student loans?”
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Student loan settlement is possible, but not for everyone. Here’s what you need to know about both private and federal student loan settlement.
Can you negotiate student loans in a settlement?
Settling student loan debt is an option in some instances, but it’s typically offered at the lender’s discretion.
In most cases, you have to be in default or close to it before you have any leverage. This is because the lender must be in a position where it can get more money from a settlement than without it.
Federal student loan settlement
If you have federal student loans in default, you’ll typically have three options if you want to try to settle:
- Waiver of collection charges: If you’re in default, you’re responsible for paying collection charges on top of your principal, interest, and late fees. Those charges can be as high as 25% of the loan payoff amount. With this option, the lender may waive the collection fees, so you’re only responsible for the original charges.
- Waiver of half the accrued interest: You’ll still be responsible for paying the principal loan balance, but this option gets rid of half of the interest that’s accrued since you first fell into default.
- Reduce the loan balance by 10%: You’ll pay just 90% of the current principal and interest owed on the loan.
Private student loan settlement
Private lenders don’t have a standardized approach with student loan settlement, unlike the U.S. Department of Education. As a result, the process and offers can vary from lender to lender.
Is settling student loan debt a realistic goal?
As you might have gathered from your options, you typically can’t negotiate unless you can pay the settlement amount in a lump sum. That goes for both federal and private student loans.
Unfortunately, if you’re struggling to make payments, you probably don’t have the cash to settle right away. But Tayne Law Group can help you build a case, protect your rights and buy some time to save enough cash to meet settlement requirements.
It’s important to note that it can be very difficult to get a federal student loan settlement since the federal government can garnish your tax refunds and wages to get payments.
However, suppose you’ve defaulted more than once on the same loans. In that case, you can prove you’re incapable of making your payments, or the debt collector can’t get the money any other way (for example, you’ve moved abroad, and wages or tax refunds can’t be garnished), your odds are better.
How does settling student loan debt affect my credit?
Debt settlement in any form can be hard on your credit. This is primarily because you’ve likely already missed several payments, so much of the damage has been done.
Additionally, a settlement means that you didn’t pay the debt as you originally agreed to do. This negative item on your credit reports can also ding your credit score.
That said, it’s important to weigh your overall financial well-being against your credit history. Avoiding credit damage can be a good short-term approach. But in the long run, relieving yourself of crippling debt can make it more possible to get back on the right financial track.
How to get a student loan settlement
Remember, you’re at the mercy of your lenders when you try to go this route. But here are some steps you can take to start the process:
- Contact the debt collector: Call the company trying to collect on your defaulted debt, explain the situation and ask if you can talk about settlement options.
- Hire an experienced attorney: A good law firm can argue for you on your behalf, saving you time and potentially getting you better results. An attorney can also provide you with the information you need to protect your consumer rights. Tayne Law Group has decades of experience helping clients settle for less than they owe.
- Save up for a settlement: Again, you likely don’t have the money now to do a lump-sum settlement. But instead of getting caught up on payments, fund an account that the firm can use to negotiate with your creditor.
- Get the receipt: Once you’ve gone through the process and settled your debt, it’s crucial to request a copy of the settlement offer. You’ll also want a written statement confirming the debt has been paid in full. That way, you don’t have to worry about the loans coming back to haunt you.
The bottom line
Settling student loan debt can be an excellent way to get rid of your loans for less than you owe. It’s possible to settle on your own, but you may be at a disadvantage unless you have a financial background and understand all the ins and outs of the process.
Tayne Law Group can help you figure out if you can settle student loan debt and which steps you can take to achieve your goal.