Negotiating a Settlement
Private lenders will offer settlements in some cases. However, the lenders can require very large lump sums to settle debts even from borrowers who are low-income.
Most private lenders will not even discuss settlement until the loan is in default or “written off.” When a loan is in default or “written off” you still owe the debt, but it may have been sold or turned over to a collection agency. If that is the case, you usually have to negotiate with the collection agency to settle the debt.
Sometimes the collection agencies will settle for smaller amounts than the original lender, but be very careful about agreeing to any settlement without first reviewing it in writing. Don’t agree to anything you can’t afford, and try not to agree to a long-term payment arrangement if you can avoid it.
It is a good idea to have a lawyer help you finalize the settlement agreement because you could end up being sued if you fail to comply with the agreement. You may even be eligible for a free lawyer through your local legal aid organization to help you. See more information on our page on finding legal help.
There may be tax consequences for any of your student loan debts that are canceled or forgiven. Talk to a tax professional for more information.
Ask About a Loan Modification
If you can’t settle your debt in full, you could also try to ask your lender for loan modification. This is an agreement that changes your loan repayment terms to make it easier for you to pay off, usually by lowering your interest rate or reducing your loan fees. If you make any of these agreements, get them in writing!
Watch out for debt relief scams!
Never pay a debt settlement or debt relief company to help you settle your debts, including your student loan debts. Many of these companies charge you up-front fees that are very expensive and make promises to you about settling your debts that they can’t keep. Don’t be a victim of one of these scams. See the Consumer Financial Protection Bureau’s (CFPB) website on this issue for more tips and information.