Unless you qualify for student loan forgiveness, paying down your student loan debt is the best way to eliminate college debt. Neither bankruptcy or foreclosure will resolve the issue.
To see if you can settle for less than you owe on your student loan debt, you may consider intentionally defaulting on your debt. As is the case with other types of debt, debt settlement companies can assist with this process.
When it comes to Private student loan settlement, using strategic default is not a good idea. Learn the reasons why.
In The Long Run, Defaulting Isn’t Going To Help
A collection agency typically takes over your student loan account if you default on your payments. Without prior approval from the Education Department, collection agencies can offer three different types of Strategic default private student loan settlements:
- There is no collection charge
- Since you went into default, you will waive half the interest accrued
- There will be a 10% reduction in your balance
These options are not more cost effective than keeping up with your loan obligations. You can be charged collection charges of up to 25% on your principal and interest on defaulted student loans.
In other words, even if your principal and interest are reduced by 10%, collection charges can negate the savings.
The most likely beneficiaries of a student loan settlement would be defaulting borrowers who have been in default for a decade or more, as the settlement discounts accumulated interest. In spite of this, the United States Educational Department will never accept anything less than the original loan balance when a loan has defaulted.
Defaulting on student loans will not save borrowers money who are currently on their loans.
Also, if you default on your student loans, the collection agency can ruin your credit if it reports the past-due account to the three major credit bureaus. Hopefully you won’t need to borrow money again until the near future because the interest rate will likely be higher. A bad credit rating may disqualify you from receiving a loan.
If you fail to make regular payments on your student loans, you are likely to incur greater financial losses.
The Most Effective Way To Default On Student Loans
If you are having difficulty meeting your current monthly payments, there are some better options to consider below.
Assistance With Student Loan Repayment Or Forgiveness Of Student Loans
Federal, state, and local governments, as well as some employers, might be able to help you pay off your student loans. A large amount of debt may be able to be eliminated in a short period of time, whether you get help paying down your debt or outright forgiveness.
Considering Income When Repayment is Planned
A U.S. The Department of Education income-driven repayment plan can reduce your monthly payments. You will receive a payment based on a percentage of your discretionary income based on your income, family size, and state of residence.
As part of an income-driven repayment plan, you will have a longer repayment term, resulting in a forgiven balance after 20 or 25 years.
Students Can Refinance Their Loans
Those with excellent credit and solid income may benefit from student loan refinancing, as it may lower their monthly payments, interest rates, or both.
Changing from a government- to a private-lender-backed loan may mean you lose out on forgiveness and income-driven repayment programs.
Furthermore, you may incur higher costs in the long run if you refinance with lenders who charge variable rates. If you are considering refinancing, consider the advantages of a fixed rate mortgage.