If your student loan is in default, a settlement agreement may be able to help you pay off your debt. However, there are disadvantages to this type of debt relief. I will describe both the advantages and disadvantages of student loan settlement in this article. The settlement of federal student loans is different from that of Private student loan settlement, so you should determine which type of loan you have before considering your options.
If You Have Defaulted On Your Student Loans, You Cannot Settle Them
If you are currently in default, you can settle your student loan balance only if you are currently in default. If you make your student loan payments every month, you will not be able to settle your debt for less than you owe. If you are only delinquent on a few payments and are not yet in default, you won’t be able to pay off your student loan at this time.
Delinquency comes before default. When you fail to make three payments within 90 days (three months), your account is considered delinquent. Your credit report is updated to reflect the delinquency. About six months after that, the loan goes into default. You must be in default if you want to settle your student debt for less than the amount owed. Check with your lender to see if you have any defaulted loans, or call 1-800-433-3243 to find out if you have any defaulted loans. If you have a Perkins Loan, you should contact your school or ECSI.
Missed payments on a federal student loan usually trigger default after nine months. When you have a federal student loan servicer such as Navient or Great Lakes Educational Loan Services, Inc., you will have 270 days to make up your missed payments before your loan goes into default. When a loan defaults, a collection agency becomes involved. To assist in collecting the debt, the agency may employ a debt collector. There will be collection charges and collection fees applied to your student loan balance.
There Are Many Advantages To Settling Student Loans
By settling a defaulted student loan, an average borrower with a $30,000 loan can save thousands of dollars. When you are ready to negotiate a settlement, you must have a lump sum of money available to pay off the debt. Depending on whether you had public or private student loans, you will save differently.
When your student loan account is closed with a zero balance, you won’t have to worry about wage garnishments, tax refund garnishments, or court hearings related to your student loan. You will have fewer worries in retirement if you pay off your college debt. Social Security benefits can be garnished to collect on a defaulted public loan, and the debt does not fall under the usual statute of limitations for debts like credit card debt and other types of unsecured debt.