What Are Student Loan Collections & How Do You Navigate Negotiation?
On the off chance that you’re overburdened with student loan debt and have missed a few consecutive payments, lenders will mark your account default and hand it over to the collections agencies. The collection agents will try to collect the debt on behalf of the lender.
If you're looking for various approaches to managing student loan collections, here’s how you can settle loans and negotiate suitable terms.
First Things First: Don't Wait For The Worst
Avoiding the process of student loan settlement is possible, but only if some preventive measures are taken beforehand. If you think you’re overburdened, make sure to notify your lender immediately. Discussing the possible options with the lender will help you avoid dire consequences.
For a federal loan, the default period usually starts once you fail to make payments for 270 consecutive days. On the other hand, in private loans, the process of default begins once the payment isn’t made for 90 days. Hence, rather than defaulting, an ideal choice would be to negotiate for a payoff and talk with the lender for options like:
- Income-driven repayment plans
- Forbearance or deferment
- Refinancing or consolidation
Let The Lender Know About Your Problems
Most borrowers opt to settle their student loans when they fail to make installments and their accounts are marked default. Federal loan plans offer extended and graduate income-driven repayment plans, as well as forbearance and deferment options. These plans will help you get your loan account back on track.
When speaking with the lender about a student loan payoff, it’s essential to clarify the reason behind the financial troubles. The borrowers need to have a reasonable summary with respect to the finances including liquid assets, income, and other similar debts.
Be Aware Of The Types Of Settlement
Student loan settlement is possible when the borrower is ready to make a lump sum payment on the outstanding debt. The collection authorities reserve the right to acknowledge three different types of settlement offers without getting any approval from the Department of Education.
- The residual principal loan amount and the gathered interest precluding the collection charges
- The principal amount and half of the unpaid interest
- 90% of the current loan amount and balance interest
When the settlement doesn’t favor any of the above categories, the process may take longer since the Department of Education will need time to review the situation.
Wait For The Lender To Quote An Offer
For a favorable deal, it’s best to allow the lender to take the initiative and plan the offer for you. Don’t pursue a particular amount while negotiating for the payoff of the student loan. Allow the lender to come up with an amount they would accept as a final payment regarding your debt.
Clarify The Tax Consequences
While looking for a settlement of student loans, there are many tax consequences that need to be considered. Hence, it’s highly advised to look to an expert tax professional for further details regarding the settlement.
Ask for A Paid-In-Full Settlement
When going for settlement of the student loan, request for an attorney to review offer terms and provide documentation as proof of the amount paid.
Request a written agreement from the lender referencing all fundamental details as well as the terms and conditions of the settlement. This should include a provision that you’re liable to receive a closure statement once all the payments are clear.
Bottom Line
Settling a loan account leaves a negative mark on your credit history.
Nonetheless, if you’re already dealing with the settlement process, be aware of the collection agencies or companies that charge advance money for settlement. There are many companies charging an additional amount than what’s initially conveyed.
Therefore, make sure to consider every aspect before applying for settlement. Look into the documents and ask for a closure statement once you move on with settling the debt.
