How to Settle Student Loan Debt

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Student loan debt can be overwhelming, particularly in today’s economy, where many new graduates are finding themselves underemployed or unemployed.  As student loan default can have serious consequences, however, you must take immediate action to avoid these repercussions.

Penalties for Failing to Pay Student Loan Debt

Penalties for failing to pay student loan debt vary according to your situation, and can be quite severe.  The federal government is often the owner of your loans, which results in increased collection powers for these unsecured debts.  Student loans are also not often dischargeable through bankruptcy. 

Failure to pay student loan debt will have a negative effect on your credit rating, which, in turn, may impede your ability to obtain credit or loans in the future.  Additionally, interest, late fees, and collection fees will accrue to your existing loan balance.  Furthermore, if the lender pursues repayment of the student loan debt through court proceedings, your wages and any future tax refunds will be subject to garnishment until the debt is paid.  If you own property, that property could be subject to a lien equal to the amount of your debt.

Options for Dealing with and/or Settling Student Loan Debt

Fortunately, there are some options for dealing with your student loan debt that can result in a temporary or permanent decrease in your payments, principal balance, and/or interest rate.  All student loan companies have deferment or forbearance options, which permit you to postpone making payments for a certain period of time, based on financial hardship or other specified reasons.  If you have more than one student loan, you may be able to consolidate your student loans debt together into a single loan with a lower interest rate, and a lower monthly payment.  Plus, under recently-passed federal laws, you also may be entitled to enter into an income-contingent or graduated repayment plan for your student loan, which bases the amount of your payment on your income.  Furthermore, there are limited circumstances under which you may be able to cancel your student loan debt in part or in full. 

When to Seek Legal Help with Student Loan Debt

While there are some steps that you can take yourself in order to deal with your student loan debt, engaging the services of an attorney may be essential.  For instance, if you wish to attempt to discharge your student loans through bankruptcy proceedings, you are likely to need the assistance of an attorney, as this process can be quite difficult.  Likewise, if you are having difficulty negotiating a plan to resolve your debt with your lender, you may want to contact an attorney experienced in creditor-debtor law to help you through the process, and to ensure that your lender is complying with all applicable laws.

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