Can you negotiate a student loan repayment?

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In some cases, you can negotiate a student loan repayment if you haven’t made your payments, but that’s not an option for all borrowers. (Shutterstock)

If you miss a student loan payment or make a late payment, your student loan account will be considered delinquent. If the delinquency continues for a certain period of time — typically 270 days for federal student loans and 120 days for private student loans — your loans will be in default, which can seriously affect your credit.

If your student loans have gone into default or are at risk of default, you may be able to negotiate a settlement with your loan holder. Here’s how to negotiate student loan repayment, when you might be able to pay off your student loans, and why this option could save you money.

If you’re having trouble meeting your student loan payments, refinancing can help you get a lower interest rate or more manageable payments. You can visit Credible for view your prequalified student loan refinance rates for private student loans.

What is a student loan settlement?

Settling a student loan involves negotiating a settlement with your student loan provider, sometimes for less than what you currently owe. These negotiations usually take place after the quality of your loan has gone from a delinquent state to a default state (or, in some cases, is close to default).

If the negotiations lead to an accepted settlement, you will agree to pay a fixed amount either in a single payment on a specific date or through a short-term payment plan.

Can you negotiate a student loan repayment?

It may be possible to negotiate a student loan repayment, depending on the type of loan – federal or private – the lender or collection agency, and the status of your loan. Even if you are suddenly thrown into a financial crisis, you cannot qualify for a student loan settlement if your loans are still in good standing.

Remember, if negotiating student loan debt is an option with your loan holder or collection agency, you should only consider it as a last resort. Although you are technically repay your student loans, a student loan settlement is not without penalties. You may have to pay additional fees when you settle your student loans. And if a collection agency is involved, that decision will likely negatively impact your credit report and credit score.

It’s also important to remember that defaulting on your student loans can affect you in other ways. Your federal student loans will no longer be considered for deferral or forbearance, you will lose many good borrower benefits, and you may not be able to get federal student aid in the future.

When can you settle student loan debt?

You may seek a student loan settlement for a number of reasons, although these may differ depending on whether you have federal or private student loans. No two situations are the same, so it’s wise to investigate the possibility of a student loan settlement if your loans are in default but you’re not yet in full default.

Reasons You Might Apply for a Federal Student Loan Settlement

You can apply for a federal student loan settlement in the following situations:

  • You cannot afford the payments based on your income level and other debts.
  • You are not allowed to defer your payments.
  • You are no longer eligible for federal or lender-issued forbearance.
  • You are not working in a public sector career that qualifies for student loan forgiveness, such as being a public school teacher or other government official.
  • You have already defaulted on the loan once.
  • You are facing financial hardship due to medical bills or a sudden reduction in your income.

Reasons You Might Ask for a Private Student Loan Settlement

Keep in mind that eligibility for private student loan settlement varies from lender to lender, as they do not have the same standardized regulations as federal loans. You might apply for a private student loan settlement if:

  • You have declared bankruptcy.
  • You can pay a lump sum without taking on more debt.
  • The loan is in default and has been sent to collections.
  • Your credit has been damaged.
  • You have missed three consecutive monthly payments, resulting in default on your loan.
  • You have defaulted on another loan.
  • The loan holder is deceased.

How to Negotiate Student Loan Repayment

If you think negotiating a student loan settlement is the best solution for your financial situation, follow these four steps:

  1. Prepare all loan documents. Before contacting the loan holder or collection agency, gather all documents related to your federal or private student loans. Make sure you have the most up-to-date information and confirm that the amounts owed are correct. You should also have your latest pay stubs, tax returns, and other financial documents handy in case you are asked to provide evidence of financial hardship.
  2. Negotiate with the collection company. When you’re ready to negotiate with the collection agency, you’ll want to provide documentation that clearly proves your financial situation. Using your pay stubs, tax returns, and repayment amounts related to other debts, you can suggest a settlement amount that fits your budget.
  3. Accept the agreement and make the payments. If you and the agency determine an acceptable settlement amount, you will formally accept the new payment number. Keep in mind that this is not a new payment structure – you will be responsible for paying this amount in full by the agreed due date.
  4. Review your other debts and create a repayment strategy. When paying off your student loan settlement, it’s important to proactively avoid defaulting on your other debts.

You can compare private student loan refinance rates using Credible, and it won’t affect your credit score.

How much could settling a student loan save you?

The amount a student loan settlement could save you will vary depending on factors such as your income level, ability to pay, and other debts.

Federal Student Loan Settlement Options

The Department of Education offers a variety of settlement options depending on your situation. Types of settlements typically offered include:

  • Exemption from collection costs — Allows you to pay only the current principal balance and interest while eliminating collection fees
  • Waiver of 50% interest — Allows you to pay the current principal balance and only half the interest amount
  • 10% capital and interest exemption — Requires you to pay up to 90% of the combined principal and interest balance
  • Discretionary Settlement — Can be offered if you do not accept any of the above amounts and it is approved by the Ministry of Education
  • Non-standard compromise — Agree on an alternative settlement with the Department of Education that falls outside of the standard agreements

If you’re hoping to negotiate your federal student loan settlement, it’s important to remember that you have rights as a federal borrower. Contact the Department of Education’s Federal Office of Student Aid or the Consumer Financial Protection Bureau for more information.

Private Student Loan Settlement Options

Each private student lender will have their own unique guidelines for settling your debt. They may not be able to reduce your settlement amount as much as a federal lender or collection agency would. If you have private student loans, contact the lender as soon as possible to discuss your options.

Remember: The student loan settlement process will be unique to your situation in terms of how much you owe, how much you could save, and what fees or special circumstances will be included in your settlement agreement.

If you’re ready to refinance your student loans, Credible lets you compare student loan refinance rates from various private lenders — all in one place.

Student Loan Settlement FAQs

Here are the answers to some frequently asked questions about student loan settlement.

Who can help you negotiate a student loan settlement?

Depending on the type of student loan you have, you will need to identify the right representative to speak with (the collection agency will usually be the first party to contact you). They can tell you which loan provider initiated the collection process and you can contact them directly to discuss your options. You can also ask the agency if they offer repayment options for borrowers in your financial situation.

Will the Student Loan Settlement Hurt Your Credit?

Student loan settlements can affect your credit. Late or missed payments for your student loans – even mistakes made before the loan went into default – will remain on your credit report for up to seven years, even after your loan is settled.

What happens after you pay off your student loan debt?

After settlement, you will receive documents stating that you have no financial obligation towards the original loan balance that you left unpaid. You should no longer receive communications from your lender or the collection agency, except for documents that you need to file with the IRS during tax season. If you receive information that you still owe money, contact the collection agency or loan provider immediately and do not make any further payments until you confirm the legitimacy of the information.

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