Can you settle student loans? Despite the recent plans of the federal government to forgive student loans and debts, many students still have at least some form of balance following them around the place.
The sad reality here is that paying back student loans may not be your top priority, especially in the case of your mortgage or rent payments, auto loans utility bills and living expenses are all demanding your attention.
Can You Settle Student Loans
But you should know that failing to make payments on your student loans can end up hurting your finances in many ways than you can imagine, and in the event that you are having trouble making payments, then you may want to consider trying an alternative approach such as negotiating a student loan payoff with your lender and then trying to settle for less than what you normally owe.
You may want to consider settling your student loan if;
- Your credit is damaged
- Your loans are close to or are in default
- You have a big sum payment to settle your outstanding debt
- Your loans have been sent to collections
- Lastly, the alternative is a court judgment
What Is a Student Loan Settlement?
Student loan settlement as you should know is when you settle your student loans for less than the original amount that you currently owe. And in the event that your loans are in default and you have a wad of cash already saved up, then your lender might just be willing to negotiate a settlement agreement with you. It works best in the event that you are behind on your debt but can pay off a good portion of it right away.
The amount of money that you may be able to save will however vary according to your lender, and not all student loan lenders in this case are willing to entertain settlement offers. But some however might get to accept a settlement if it is the only way that they expect you to pay off your outstanding debt.
When Can You Settle Your Student Loans
If you are in good standing and you make timely payments every month, you cannot settle. And even if you are a little late on your last payment, you usually are not eligible until your loan in question is in default. And even at that, it is however not a good thing to intentionally default to get to a settlement, typically, lenders will not agree to settle until they have exhausted all of their debt collection tools within their arsenal.
You may qualify for federal student loan debt settlement if the following conditions are met;
- You cannot afford the loan. Here you must prove that you cannot pay back your loan through pay stubs, bills, or even recent tax returns.
- You have not paid your loans in close to a year. Many federal student loan services will consider your loans in default after you have failed to make payments for 270 days.
- You have redefaulted. If you have redefaulted on the very same loan on more than one occasion, options such as rehabilitation, deferment, forbearance, or income-driven repayment plans may no longer be available to you. A settlement instead may be just one of your last options.
Many private student loans default after a period of 120 days of nonpayment, although this varies by lender. And if you can show your lender that you don’t have income or assets to pay back your loan, it just might accept a settlement offer. You will however still need to come up with an offer that is worth accepting, which at most times includes a lump-sum offer or a final amount that is paid over the course of a couple of installments.