How Do I Negotiate Student Loan Debt?

by Amber Keefer, Demand Media
    Talk to your lender before you fall behind on your student loan debt.

    Talk to your lender before you fall behind on your student loan debt.

    If you're overwhelmed by student loan debt that you can’t afford, you may find that negotiating a payoff can be a bit tougher than settling other debts. Help is available if you took out government-sponsored student loans, but loans from private lenders are another matter. You can hire a professional to assist you, but if you're having difficulty paying back your student loan, you probably can’t afford to pay the additional fees. That leaves you to negotiate repayment of your student loan for yourself.

    Step 1

    Gather all records relating to your student loan payments. If your paperwork isn’t complete, contact the lender servicing your loan to request a copy of the payment records. Compare these with any records of your own to make sure that no mistakes were made. Sometimes errors occur in which payments are not reflected or interest is not calculated correctly.

    Step 2

    Contact the original lender to inquire about negotiating payment of your loan. If the lender has already turned your account over to collections, you'll probably need to work directly with the collection agency. Explain why you're unable to pay back your loan as promised. See if the lender or collection agency is willing to lower the amount of interest you owe, forgive some of the interest or waive all collection and past-due fee amounts. You can then work to negotiate a payoff agreement.

    Step 3

    Talk to your lender about a payment agreement to pay off your loan. The lender might be willing to set up monthly payment arrangements if you can pay off the principal balance or an agreed-upon amount within a year. Keep in mind that it's seldom possible to negotiate a student loan for less than the principal amount.

    Step 4

    Offer to make a lump-sum payment. The likelihood of settling the loan is highest if you can pay a large amount at once. While this is not always a feasible option for everyone, it might be a possible solution if you're expecting a large sum of money, such as a tax refund. Lenders will sometimes give you up to 90 days to settle the payoff amount if they know you'll have the money. According to Bankrate.com, the problem is that most individuals who have student loans in default don't have a lot of extra cash to pay off the loan, even if the lender agrees to take a lesser amount.

    Step 5

    Ask your lender if you qualify for the income-based repayment plan. The plan covers Stafford, Grad PLUS and federal consolidation loans. If your annual income is less than $16,000, no payments are due. Otherwise, you will be charged 15 percent of the amount of your income that exceeds $16,000 after deductions. Any loan balance that is not repaid over a term of 25 years will be forgiven.

    Step 6

    Rehabilitate your loan. If your loan has defaulted or entered into collections, you must go through loan rehabilitation before qualifying for the repayment plan. Your monthly loan payments may be higher during this time, and you'll need to make your payments in full and on time for 10 consecutive months. Afterward, you can see if you qualify for the income-based repayment plan.

    Step 7

    Get everything in writing. Ask your lender or the collection agency to send you detailed information about your payoff agreement. Don’t send any money until you receive a signed copy of the agreement you’ve negotiated. This protects you from submitting a payment and then being told that it was credited as a lump sum payment and not a payoff.

    About the Author

    Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

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