How to Get a Settlement for Default Student Loans

A student loan is any loan that is intended to help you finance your education. It may be financed by the government or awarded by private lenders. A federal student loan will fall into default after nine months of missed payments. Private student loans, however, may fall into default status immediately after you stop paying the debt. A defaulted student loan continues to accrue interest until it is paid off. Should the debt be transferred to a collection agency, extra fees apply. If you are financially able to settle a defaulted student loan, you should do so before the fees and interest charges grow too high to manage.

Instructions

Federal Student Loans

1

Save enough money to cover the original balance of the loan. The federal government may be willing to waive the added fees and interest, but you will not be able to settle for less than the original loan balance.

2

Gather any documentation you have that demonstrates you are financially unable to make payments on the loan. This may include tax documents or proof that you are unemployed or on public assistance.

3

Write a letter outlining your settlement offer. Explain that you are able to settle the debt in a lump sum for the original loan balance.

4

Mail your letter and the documentation of your financial hardship to the servicing center at the U.S. Department of Education that processes the type of federal loan you originally received.

5

Contact the servicing center by phone if you do not receive a response to your settlement request or if your request is denied. Ask to speak to a supervisor and explain your situation. Inform the supervisor that you are able to provide extensive documentation as to why you are unable to make payments on the loan and ask for a settlement.

6

Hire an attorney if you are unable to settle your federal student loan debt on your own. An attorney may be able to help you obtain a settlement.

Private Student Loans

7

Add 180 days to the date you made the last payment on your loan. Compare this date to the statute of limitations on debt collection in your state. If the statute of limitations on the debt is no longer valid, you cannot be sued for the balance and may not need to seek a settlement. You can check your state's statute of limitations by contacting your attorney general's office.

8

Contact the creditor or collection agency that currently owns the debt. Explain that you are interested in a debt settlement agreement. You do not have to settle for the full balance of the loan, nor do you have to make a lump sum payment to procure a settlement for a private student loan.

9

Wait for a while if the creditor rejects your offer. The older your private student loan debt gets, the more eager the lender or collection agency will be to negotiate a settlement with you. This is because the creditor knows that after the statute of limitations passes, you will no longer be legally liable for the debt.

10

Call the creditor back and again attempt to negotiate a settlement. The longer you wait, the more likely your creditor is to work with you and lower the balance of the defaulted loan.