Student Loan Settlement Relief

student loan settlement debt relief can help resolve your debt problems.

Your financial situation is different from someone else. The student loan settlement debt relief service that works for someone may not be the best choice for someone else. You should take the time to understand all the debt relief options available to you to find the best solution for your needs and goals.

What Is Student Loan Settlement?

Student loan debt settlement (or debt adjustment) is the process of resolving delinquent debt for far less than the amount owed by promising the lender a substantial lump sum as full payment. Normally a debt settlement option occurs with your unsecured debt like credit cards, medical bills and personal loans. However this debt relief option can also apply to student loans and borrowers can arrange to pay less than what they originally owed. But it can be difficult to negotiate, does come with negative considerations and there are alternatives to think about if you find yourself in loan default.

Is Student Loan Settlement Possible?

This debt relief option is only possible if you are in default on your student loans due to a financial hardship. In general, the time to pursue debt settlement is after you have gone into default (and the collections process has begun), but before any legal actions have been taken by your lender. Your loan lender may agree to settle for a lower amount than what you borrowed if it means resolving your debt without the need for collections, court judgments, or other actions.

However there is no legal obligation for your lender to negotiate. And, unlike other type of unsecured debts, student loans, with few exceptions, do not qualify for being discharged in a personal bankruptcy judgement. This means that your loan lender has less incentive to negotiate a settlement with you.

Reasons Private Student Loan Settlement


ll
reasons for private student loan settlement

Settlements for defaulted private student loans are more common because these lenders do not have the debt collection resources of the federal government. A private loan holder may accept a settlement in the following instances:

  • You Have Little Income Or Assets.
  • Your student loan lender will likely make its decision based on its perception of your ability to repay. You will need to demonstrate a long-term financial hardship as to why it won’t be able to get much money from you in the future.
  • You Have A Strong Legal Defense.
  • Private student loan lenders can force repayment by taking legal action and suing you in court.  This implies potentially garnishing your wages or directly from your bank account.
  • But if you can prove in court that the debt’s statute of limitations has expired or the loan is unenforceable for another reason, you could prompt a settlement or dismissal of the debt.

Reasons Federal Student Loan Settlement


ll
Reasons for federal student loan settlement

Federal student loan settlements are not common because the Department of Education and other federal student loan lenders have ways to get money from defaulted loans, such as wage and tax refund garnishment. They may make an exception in the following situations

  • You Cannot Afford To Repay The Student Loan.
  • There is no set hardship standard for debt settlements. You wil have to provide copies of your tax returns, pay stubs or other documentation to make your case.
  • You Have Defaulted More Than Once On Your Student Loan.
  • If you have re-defaulted on the same loan, your loan lender may be more willing to work with you due to your limited options.
  • Your Student Loan Lender Cannot Collect The Debt.
  • Your loan lender may accept a debt settlement because it cannot get the money from you any other way.  An example would be if you no longer reside in the US and can no longer be threatened with your tax refunds seized or wages garnished.
 
IdentiyForce | 40 Years of Experience
 

Is It A Real Possibility For You?

To negotiate a settlement with the student loan lender, your loan has to be in default, you have to have a long-term financial hardship and you have to available a large amount of money to negotiate a lump sum loan payoff.  However, if you did have a large sum of money, you probably would not be in default of your student loan.  (This excludes the concept of a  strategic default, which poses many legal risks for you.)

But some people might be in default and have other finances pending, like an inheritance or a gift or a loan from a family member.   You may also find in your negotiation with the student loan holder that large installment repayments may be accepted as an alternative.

The decision to negotiate a settlement of your student loan is unique to each person’s financial situation.  You have to determine the outstanding balance on your student loan, the range of settlement discounts that can be accepted by the holder of your loan and whether you have the financial budget to negotiate an acceptable settlement offer.[/vc_column_text][/vc_row]

Settling Private Student Loan

settling private student loans

Debt settlement is more common with private student debt, though not quite as common as settling other kinds of unsecured debt. Collections on private loans cannot tap into your tax returns, Social Security benefits, or other kinds of federal benefits. They also must go to court in order and obtain a judgement to garnish your wages.

However, settlement of student loans is less common than other kinds of unsecured debt because it is not dischargeable in bankruptcy (except in extremely rare cases). Once again, this is because a student loan’s collateral is your earnings, and you will have to prove that you will never be able to earn enough to pay back the student loans ever. This is very difficult to achieve.

There are statutes of limitations on private loan collection. The rules vary state-by-state, but in general after a certain amount of years (usually between 3 and 10 years), your loan holder can no longer begin litigation against you. This means the loan holder cannot begin garnishing your wages or place liens on your property. As your student loan approaches its statute of limitation, you may find the loan holder more motiviated to negotiate a settlement rather than risking total loss on the account.,

Each private lender has its own policies on settlements and discounts that can be accepted. Before contacting the student loan holder to negotiate a settlement, you should seek professional advice to determine the best strategy for success.

Settling Federal Student Loan


settling federal student loans

While you can technically settle your federal loans, it is highly unlikely that you will be able to. Why? There are just too many ways the US government can collect from you once you are in default. They can garnish your wages, take your tax refunds, garnish your Social Security, or go after other federal benefits.

The Department of Education issues no public guidelines on settling federal loans because they do not want to encourage anyone to do so.

However, you have three standard alternative payment options via the US Department of Education private collections agencies. You will be required to pay your student loan settlement debt in one lump sum within 90 days of agreement. Also, you may also owe taxes on any unpaid interest forgiven as part of a debt settlement.

These federal debt settlement options are:

  • Pay all your current principal balance plus unpaid interest, with any future collection surcharges and fees waived.
  •  Pay all your current principal balance plus unpaid interest, with any future collection surcharges and fees waived.
  • Pay 90 percent of the total principal and balance owed with 10 percent discounted

How Much Can You Save?


Remember no debt collector, be it federal government or a private company, will allow you to settle your loan for less if you have at least a reasonable chance of paying it back. You need to demonstrate a serious, long-term financial hardship, where it is apparent to both parties that you will not be able to pay the outstanding balance on the student loan.

Private student loan debt settlement amounts vary greatly.  You student loan holder may  not accept less than 80% of the total owed, whereas other lenders will take less than 50%.

Federal student loan savings are not nearly as large. The Department of Education provides its loan collection agencies with specific guidelines for how much of the debt is acceptable to waive. You may receive one of the following:

  • 100% of collection costs waived.
  • 50% of interest owed waived.
  • 10% of principal and interest waived.

Whether you settle federal or private student loans, you may owe income taxes on the amount that you do not pay and is forgiven.

If you and your loan holder agree to a settlement, get the offer in writing. Once you have paid the amount as required, make sure you receive a paid-in-full receipt. You will want to hang on to that in case questions about your debt arise in the future.

 
 

Credit Repair | Identity Theft

Debt Relief Articles


This Internet site provides information and reference material to consumers. It is intended to help connect them with providers of products and services that may assist them in their financial needs.