Is A Student Loan Settlement Possible For You?
When is a student loan settlement possible?
A student loan settlement may sound nice—settling with your lender to pay less than you owe, but the deal can be damaging to your credit, the savings may not be as you expected (especially if the collection costs are added to your debt total), and it is no guarantee that your lender will agree to this option.
A student loan settlement is only possible if:
- Your student loans are currently in default—or are about to be.
- Your lender believes the settlement will provide them with more than if they tried to pursue collective actions against you.
- You have the means to pay the settlement amount in full or within a few installment payments.
Federal student loan settlements are rare; usually, a lender will prefer to implement wage garnishments or an income tax offset because they are more likely to recover more money from you through these means than through a settlement, even if it takes some time. They also require you to be in a financial situation where your student loans are defaulted, and you cannot make your payments—but also have the means to make a large lump sum payoff. A situation, few borrowers are in. Those who qualify for a student loan settlement often rely on inherited money, liquidated assets, or a 401(k) cash-out to meet the contradicting financial conundrum.
How much would a student loan settlement actually save me?
For federal student loans, there are very strict guidelines to an acceptable settlement offer. A borrower can choose between only one of the options below to have waived or eliminated from the debt owed as the terms of their federal student loan settlement:
- All of the collection costs waived from overall balance
- Half of the interest costs waived.
- 10% of the principal balance and interest waived.
Another consideration to make before attempting to make a deal—you may be required to pay taxes on the amount that is waived come tax season. Borrowers may make the appeal for a federal student loan settlement themselves or may opt to have an attorney or other experienced representative assist them in the matter.
Before relying on a student loan settlement as your salvation from defaulted loans, contact the student loan debt relief experts at SLAG to review all of your potential options to help you pick the one that is truly in your best financial interest.