Yahoo Finance Negotiating a Student Loan Payoff? 4 Things This Attorney Wants You To Know
It’s estimated that student loan debt in the United States totaled $1.727 trillion last year, down from the previous year. Although the Biden-Harris administration’s Student Debt Relief Plan could not proceed with one-time student loan forgiveness of up to $20,000, some borrowers still found relief with other measures, such as receiving public student loan forgiveness.
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Despite this, many still wonder whether they can have their loans forgiven another way. While student loan forgiveness programs may be tied up in litigation, we spoke to Leslie H. Tayne, Esq, founder and managing director of Tayne Law Group, P.C., to find out if there are other avenues one can pursue, such as a student loan debt settlement.
What Is a Student Loan Debt Settlement?
“A student loan debt settlement involves negotiating with a lender (or a collection agency on behalf of the lender) to pay off a portion of the outstanding student loan balance in exchange for the remaining debt being forgiven,” Tayne said.
Settlements are commonly paid within one lump sum or a structured repayment plan with a reduced payment plan. This process can help one reduce overall debt and eliminate student loans.
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Are All Student Loans Eligible for a Debt Settlement?
It’s important to note that not all student loan debt can be negotiated down into a settlement. Federal loans through the U.S. Department of Education aren’t usually eligible for a student loan debt settlement for less than the current recovery rate of the loan.
“The current recovery rates percentage of disbursements on recovered defaulted loans, including interest and penalties,” Tayne said.
As a result, it’s mainly private student loans that can be negotiated into a debt settlement. This distinction is crucial for borrowers to understand their options. You’re also less unlikely to be considered for a student loan debt settlement if you’re current on your payments and/or your finances show that you can repay the debt according to a reasonable payment plan.
What Steps Can You Take To Start the Process?
“The first step is to determine which types of loans you have, the total amount owed, interest rates, and their status,” Tayne said.
Doing this first can help you evaluate your total financial situation and the list of options that are available to you. Next, review your monthly income and expenses to see how much you can realistically afford to offer a settlement. The money you have to work with will be the excess money you have that isn’t currently used toward your bills. Another suggestion is to gather any financial information and forms that can help prove financial hardship, such as bank statements, your tax return, or any other documents, such as different accounts currently in the collection.
Next, reach out to whoever is in charge of collecting your loan. If you are already in default, this could be a loan servicer, lender, or collection agency. If you’re unsure who owns your loan, you can check with the U.S. Department of Education by logging into your MyAid page. Once you find out who owns your loan, you can then call them to discuss your financial hardship and ask about a student loan debt settlement.
Tayne said that one of the most important things you can do during this process is to practice patience.
“Depending on the status of the debt, this could take months, if not longer than a year, to work out.”
Keeping all documents mentioned above organized for easy access can be crucial to help speed the process along, as you can submit needed paperwork while on the phone or directly by email.
If the lender is open to a settlement, be prepared to offer an amount you can afford. Start lower than what you can ultimately pay since your loan servicer will want to negotiate in order to receive as much of your original loan back as they can. This is one of the reasons this process can take as much time as it does. Once a settlement agreement has been reached, be sure to get it in writing ASAP. This letter should include the amount to be paid, when the settlement needs to be paid and confirmation that said date will forgive the remaining balance once you have made your payment.
To Keep in Mind
Unfortunately, lenders are not legally obligated to accept a settlement, so a student loan debt settlement doesn’t always work. Tayne advised that you may still have financial resources if you’ve already found yourself in default, especially with the assistance of a debt relief attorney working with student loan debt.
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This article originally appeared on GOBankingRates.com: Negotiating a Student Loan Payoff? 4 Things This Attorney Wants You To Know
