Student loans are a major problem for many professionals. In order to finish your education, you will need to have enough money to pay for it. While applying for student loans is a great investment for the future of your career, it can be difficult to get out of the debt once you have graduated.
Federal and private student loans both come with interest rates and other terms that make paying them off even harder. Luckily, there is a solution to fix that problem and it is through negotiating it with your lenders. However, this can only be done at certain times, in certain circumstances, and with certain lenders.
The lenders still hold the power of the negotiation due to borrowers signing a very clear contract that protects the agreement between them, which means that lenders might not give students a break from the loan. An exception to this would be a lender who buys other debt portfolios, like NCT.
Each individual has different reasons for why they need more time to pay off student loans. Unfortunately, the interest rates and the terms are determined by algorithms that don’t consider each student’s needs. To be blunt, private loans are designed largely to return dividends to investors and shareholders as well as meet a need for funding education. This doesn’t intrinsically make them bad, but it is something to keep in mind.
It is common for companies that offer student loans to make it clear that there is no room for negotiating the price or the loan terms, but the truth is you can still find ways to speak with the lender. Usually, lenders will not agree to any major concession as far as settlement unless loans are in default or close to it. This comes with its own set of risks and downsides.
A student loan negotiator will tell you that the most important rule when discussing your loan with the lender is making sure that you have a plan before picking up the phone to call your lender.
There are ways to successfully negotiate your student loans and free yourself from the debt.
Are borrowers able to negotiate student loans with the lenders?
When it comes to negotiating federal student loans, reductions are rare and hard to come by; usually only happening if the loan has been in default for a long time and accrued a lot of interest and late fees. Even then, many federal loans won’t settle for anything beyond a removal of those late fees.
Private student loans settlements are considered an option for borrowers if they failed to make payments for 6+ consecutive months.
The usual process of negotiating student loans first starts with missing payments for 6 or more consecutive months due to various hardships or “strategic default”. Once the company sees that you have failed to make your payments, they will pass your loan to a collection unit or a debt collection agency; and likely have more room or incentive to accept a reduced sum settlement.
As you are waiting for the collection agency to contact you, begin reviewing your finances to see how much money you have and what amount you are able to pay each month if you do a structured arrangement. Once you get your finances figured out, call the collector to see what type of settlement they can offer you, as well as giving them your own preferred offer to settle the loan. Remember to never open your offer with the amount that you wish to settle with – always start lower. Keep in mind that the first offer from the collector will likely not be the best offer that they are authorized to take.
The last two steps are waiting for the collector to review the offer with the lender and if they want to reject it, counter it, or accept it. If your offer gets accepted, make sure that you receive a settlement agreement in writing before you start making the first payment.
Federal loans settlements are always an easier process that ends up with accepting, rejecting, or countering the offer you make usually within one round of negotiations. Unfortunately, private student loans settlements are trickier and can take a very long time when you compare it to federal loans – but your eventual settlement will be a much lower percentage than anything you would get on a federal loan.
When you negotiate an offer for a private loan they may accept or reject it. If they reject it, you wait for a counter offer that may or may not happen. After waiting a while to see if they send you a counter offer, you can then make another offer. Keep in mind that at any point in the process, your loan can get moved to another debt collector to restart the entire process again – or even an attorney. You can still settle with an attorney collection firm, but if they sue you, you’ll need to hire competent legal representation.
It is important to stay focused and continue with resolve throughout the process of negotiating your student loans debt. However, it’s also important to be realistic. Except for very old defaults, your lender is probably not going to settle for something like 10 or 20%.
There are three requirements to settle student loans and you need to meet one of them. You can consider settling your student loans if:
- Your loan is in default or near default.
- The loan company or the lender will end up making more money by setting the student loan with you instead of continuing the debt.
- You are able to pay off the settlement in full or can save enough money to pay it off over a few installments.
Failing to pay the lender will impact your credit score severely, as well as owing more money to the collection agency that can charge late fees. Generally, your credit will improve after settlement.
While negotiating your student loans is possible, there is no guarantee that it will work with your lender so it is important to do your research; or better yet, hire a professional who has experience negotiating with your lender.
Federal student loans settlement
Federal student loans are not always settled due to the Department of Education and other holders’ ability to forcibly collect the money you owe through different ways.
Your defaulted loans can be collected through wage and tax garnishment by the Department of Education, and it is important not to default on a federal loan in order to try to settle it.
Reasons that a lender will settle include:
Your debt can’t be collected
If your loan holder sees that it is difficult to collect the debt from you (for example, if you are out of the country or they can’t locate your address) they may accept a debt settlement as an option to receive some money.
Private student loans settlement
Private student loans settlements are more common than the federal ones. Private lenders don’t have the same power that federal lenders do to get the money they are owed, and this gives them more incentives to accept a settlement.
How to settle your student loans
There are different ways to settle your student loans. You can either do it on your own or find a student loan negotiator to guide you through it. Hiring an experienced negotiator can help reduce the time, effort, and stress involved. They can also use their expertise and past experience to get a better outcome than you could obtain on your own. They may even have relationships with managers and supervisors at various departments for your lender or their debt collectors.
The first thing you have to do is either you or your representative contact the company or the debt collection agency about your student loans. It is helpful to speak to them and ask about your settlement options. However, don’t do this before you’re ready to actually settle – it’s counterproductive to contact them prior to having the ability to settle, unless it is to set up a temporary payment plan.
Hiring a lawyer who is an expert in student loan or debt settlement will be very beneficial for your case if you are actually taken to court by the lender. If you happen to get sued by a private loan company, a lawyer will usually find a way to get your debt settled. However, this is often the lender’s last resort, and you don’t need to pay a hefty legal fee unless you are actually facing legal action.
Another option is using a debt settlement company or negotiator with experience, that will negotiate an amount with the loan holder. If you decide to choose this option you have to be careful, as many student loan companies refuse to speak to debt settlement companies, especially if your loan is not in default.
Both federal and private student loans will have implications, depending on your situation. It’s recommended to hire a good tax professional as well, as you could find yourself owing income taxes on the amount that you are not paying once you settle with the lender – however, there is a common exemption to this.
Settling your student loan debt doesn’t mean that you are guaranteed to have your loan waived completely. Some lenders accept less than 50% of what you owe, and some will only accept 80% of it – there are many variables involved.