I’m being overwhelmed
by my student loans? How can I settle them for less than what I owe?
Debt settlement—or paying off a loan by paying less than the
full amount owed—is voluntary on the part of lenders. No lender is forced to
allow you settle a debt for less than the amount you agreed to pay when you
took out the loan.
You try to settle your student debt the same way you would
try to settle any debt: by contacting the lender, explaining (and being able to
demonstrate or prove) your hardship and financial circumstances, and
negotiating some partial payment of the debt as payment in full. While lenders
don’t have to settle with you, they tend to be reasonable: if it looks like
what you’re offering is both a decent deal (e.g.
you’re paying all or most of the principal, even if you’re not paying the
interest) and the best they can hope for, they are more likely to take it.
Being able to offer more money up front, such as by taking out a home equity
loan to provide a lump sum payment, will increase the attractiveness of your
However, that said, it can be more difficult to settle a
student loan than many other kinds of debt. That’s because the borrower has
less leverage than in most other cases. Often, the borrower can threaten to
declare bankruptcy if some settlement cannot be reached, which provides an
incentive to the lender to work with him or her. However, it is almost
impossible to discharge student debts in bankruptcy, which eliminates that
threat. Lenders know that the borrower, except in very special cases, cannot
eliminate his or her student debt.
Therefore, in student loan cases, it’s often a good idea to
look into various “deferment” options available to you. There are typically
some mechanisms by which you can delay paying student loans, at least while in
financial distress. This is often a much more available and practical solution
than looking to settle a debt when you lack the leverage of bankruptcy.
If you are determined to try to settle your student loan
debt, you should retain an experienced attorney to negotiate on your behalf.
Negotiating with creditors is an art; you don’t want to have to try to master
it when the stakes—your own debt, which is “overwhelming” you—are so high.