Settling your Student Loans

Settling private student loans typically involves negotiating with the lender to reach an agreement on a new payment plan or a lump sum payment that is less than the full amount owed. Here are the steps to settle private student loans:

  1. Gather information: Get a detailed understanding of your current financial situation, including your total debt and income, as well as information about your private student loans, such as the lender's contact information, the loan balance and interest rate.
  2. Consider stopping payment: While it will hurt your credit, most of the best settlements occur once the loan is considered to be in default which occurs after 6-12 months of delinquency.
  3. Keep a record of contact: Many people will want to reach out for legal counsel at this step. Once we are retained, we normally will send a creditor a representation letter with a cease and desist demand. This stops collection calls to our client, any co-borrower, friends/family etc. The calls can be relentless and we find that this rep letter will stop most calls and help our clients retain their sanity! For any calls or letters that continue to be made/sent to our client directly, we ask that our client retain copies and keep a record including screenshots of any calls. Continued contact is usually a violation of the Fair Debt Collection Practices Act or its Florida counterpart, the Florida Consumer Collection Practices Act. We often use these violations in our settlement discussions.
  4. Contact the lender: Reach out to your private student loan lender and express your desire to settle your debt. Explain your financial situation and offer a proposed settlement amount. Many borrowers prefer to have legal counsel at this stage.
  5. Negotiate: Be prepared to negotiate with the lender to reach an agreement on a settlement amount and payment plan. The lender may be willing to accept a lower payment or a lump sum payment if it means they will receive something rather than nothing.
  6. Get the agreement in writing: Once you reach an agreement with the lender, make sure to get it in writing and keep a copy for your records.
  7. Make the payment: Once you have reached an agreement, make the agreed-upon payment as soon as possible to avoid any additional interest or fees. Keep proof of your payment.
  8. Check your credit: After 90 days, use to check your credit to make sure that the agreed upon settlement is properly disclosed. Errors can be costly for you (higher interest rates, declined credit etc.) We often will file Fair Credit Reporting Act violations on behalf of our clients for anything that is inaccurately reported. This is done on a strictly contingent basis where we are paid only if successful.
  9. Consider taxes: Right now we have the rare opportunity to discharge taxes for any debt forgiveness for student loans, whether private or federal. This waiver exists until December 31, 2025. For example, if we settle a private student loan for one-third, that means the 66% that is forgiven would ultimately be provided on a 1099-C to the IRS and our client would owe taxes on that. There is no tax if the settlement is completed before 12/31/25.

It's important to note that settling private student loans can be a complex process, and not all lenders may be willing to negotiate. It may also have a negative impact on your credit score. It's recommended that you consult with a student loan expert or financial advisor for guidance.

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