Can you settle student loan debt? Well, you surely can settle your student loan debt. But based on the type of loan debt in question whether federal or private student loan, the whole process can either be straightforward or hectic. Continue reading to learn of the various ways you can settle your student loan debt.
Can You Settle Student Loan Debt
Student loan settlement is very possible, but the thing is that you are at the mercy of your lender to accept less than what you originally owe. With that being said, there are a couple of factors that need to be in place for a settlement to happen. In order for a settlement to take place, your loans need to be near or in default. Your loan holder also would have to make more money by settling rather than pursuing the debt in question. The last factor for a settlement to happen is if you have or can save enough money to pay for the settlement of the entire amount or over a couple of installments.
When Can You Settle Student Loans
Both federal and private student lenders will require that your loans be in or near default in order to start settlement negotiations. Federal student loans as you should know enter default after 270 days of past-due payments. Timelines however vary for private student loans, but default at most times happens after 90 days of missed payments, as per the Consumer Financial Protection Bureau.
Federal student loans as you should know are rarely discharged via bankruptcy, but private loan discharge in bankruptcy on the other hand might be an option you can explore to get rid of your private loans.
Federal student loans also have other options that could easily and effectively eliminate your debt. Defaulted federal student loans can be ultimately discharged in instances such as school fraud and both total and permanent disability, but they however are not eligible for loan forgiveness. If you would otherwise qualify for forgiveness, then you should return your loans to good standing instead of settling them; you will very much likely save more money.
Reasons for Federal Student Loan Settlement
In regards to federal student loan settlements, they are not that common due to the fact that the Department of Education and other financial student loan holders have their ways of getting money from defaulted loans such as tax refund garnishment and wage garnishment. They also may make an exception in situations such as;
- You have defaulted more than once on the said loan
- You cannot afford to repay the loan in question
- Your loan handler cannot collect the debt
Reasons for Private Student Loan Settlement
Settlements regarding defaulted private student loans are more common, and this is because these lenders in question don’t have the collection leverage just as their federal counterparts. With that being said, a private loan holder may accept a settlement in instances such as;
- You have a strong legal defense
- You have little to no income or assets
How Much Loan Settlement Can Save You
The amount of private student loan debt settlement varies. Experts have ascertained that many lenders may not accept less than 80% of the total amount owed, whereas other lenders will likely take less than 50%.
Savings are not nearly as huge for federal student loans just so you know. The Department of Education does provide its loan holders with specific guidelines for just how much of the debt is OK to forego. With that being said, you may end up getting one of the following;
- 100% of collection costs waived
- 10% of the principal and interest waived
- 50% of owed interest waived.
And if it is that you have older loans that originated under the Federal Family Education Loan Program, your guarantor, the organization that takes the ownership of these loans in default rightfully has an additional option which is waiving 30% of both your principal and interest.
Federal student loan holders on the other hand can easily accept settlement offers for less than these amounts mentioned here, but it is however rare. Alternate settlement offers on the other hand require additional approval either from within the firm or the Department of Education itself, as they further affect the profitability of the loan.
And whether it is that you settle federal or private student loans, you may get to owe income taxes on the amount that you do not pay. With that said, you should always contact a professional on taxes in order to find out the implication as tied to your situation.
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