How to Settle a Private Student Loan
- 4 min read
- Settlements on private student loans are rare.
- Unless there is a hardship student loans cannot be included in bankruptcy.
- Borrow from a friend or relative, or consider a peer-to-peer loan.
What to Offer a Collection Agent to Settle a Private Student Loan
Today, negotiators do not know nearly as much about negotiating private student loan debt as they do settling delinquent credit card debt. However, some of the lessons learned in credit card debt may apply to private student loans.
What does credit card debt have to do with delinquent private student loan debt? A great deal. Both debts are unsecured by a vehicle or a piece of real estate. Both were lent by private lenders not involving the federal government. Both follow state statutes-of-limitation and collection rules. State courts look at student loan debt the same way they do any other unsecured debt. The only difference separating unsecured consumer debt from private student loans is that student loans cannot be discharged in bankruptcy, generally speaking.
Debt Settlement Amounts
Bills.com’s partners have several years of experience in negotiating settlements for credit card, medical debt, and similar types of consumer debt. Consumers have an idea of what to expect when negotiating delinquent credit card debt. It is common for credit card issuers and their collections agencies to settle a delinquent balance with a borrower for 40 to 60 cents on the dollar.
Check the Dept. of Education’s National Student Loan Data System (NSLDS) to see if the loan is federal. State statutes of limitations do not apply to federal loans, and are subject to collection indefinitely. Student loans not backed by federal grants or guarantees do not appear in the NSLDS, and are therefore private. Private student loans are subject to state statutes of limitations.
Because settlements for student loans are relatively new, there is much less collective experience among Bills.com partners in settling private student loans. We can make the following inferences about private student loan settlement based on its similarity to credit card and medical debt.
Collection agents can work on behalf of the original creditor, or buy collection accounts from the original creditors. When collection agents buy a collection account, which is common today, they do so for pennies on the dollar. Depending on the age of the account and the amount of documentation included in the collection account file, some collection agents are willing to accept 15 cents on the dollar for a lump-sum settlement on an old account. On new collection accounts, the settlement amount for credit cards is 40 to 60 cents on the dollar.
Why Private Student Settlement Offers May Differ From Credit Card Debt
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As of 1998, student loans cannot be included in a bankruptcy discharge, unless there is a hardship such as a disability. This would imply that private student loan settlement amounts would be greater, as a group, than credit card or medical debt. There are two examples that lead to an opposite conclusion.
Some IRS and state tax debt cannot be included in a bankruptcy filing. The IRS and state governments have the right to administratively seize the balance of financial accounts and garnish wages and Social Security benefits, and intercept tax returns. Even with that much power, both the IRS and states offer tax settlement programs where delinquent tax debt is slashed dramatically if the taxpayer meets government standards for financial hardship. In some cases, the IRS settles debt for pennies on the dollar.
Mortgages are another contrary example. Mortgages and lines of credit are secured by the borrower's real property. When negotiating a lump-sum settlement on a delinquent mortgage, the risk to a homeowner is, of course, foreclosure and property loss. Nevertheless, servicers of defaulted second mortgages will accept 25 to 40 cents on the dollar for lump-sum settlements.
Student Loan Settlement Offers
Let us assume that, all other things being equal, a private student loan collection account is worth more than credit card collection account because of the bankruptcy exemption. However, when we talking about accounts that sell for pennies on the dollar, is "a bit more" two or three cents or a dime? We do not yet know the answer to that question.
Start settlement negotiations at about 25 cents on the dollar for a lump-sum private student loan settlement and work up from there. Read the Bills.com resource negotiate debt to learn tips and tactics for dealing with debt negotiations.
If you do not have a lump-sum to make an offer, it is unlikely you will be able to find a bank or credit union to help you in this regard. Your alternatives are to borrow from a friend or relative, or consider a peer-to-peer loan.
Readers, if you have experience negotiating a private student loan settlement, please share what you learned in the comments section below.
For the benefit of readers in other states, see the Bills.com resource Statute of Limitations on Debt page to learn consumer statutes of limitations laws for the 50 US states and the District of Columbia.
I would not contact Sallie Mae, given that the six year SOL in AZ for a written contract is relatively close to being reached. Doing nothing doesn't guarantee not being sued, buti f you shine light on yourself it's likelier to draw attention to the matter. It increases, in my view, the chances of being sued before the SOL passes. I would sit tight and see if the SOL passes.
I recommend validating the debt. Did they send you anything in writing? Read it carefully. Paying anything could bring a debt that is expired (on which the statute of limitations on debt has passed) back to life. If they send you something, read it carefully to see if it references their inability to sue you.
No matter what, if you are sued, act on the summons. If the SOL has passed and you don't appear in court to use the SOL as a defense, you could end up with a default judgment against you.