settlement defaulted student loans

[phpanda.livejournal.com]

Have anyone successfully negotiate a lump sum settlement to avoid 18.5 or 30% collection fees for student Perkins/Stafford loans that have gone into default? I am amazed for not paying for one year that the interest rate has gone through the roof, payments cannot be income-based until out of rehab, and there are these incredible collection costs on the full principal.  Working two jobs but don't want to do this for 10 years+! Any tips?

Comments

[lunarcamel.livejournal.com]

A classmate of mine from law school, Adam Minsky, (http://bostonstudentloanlawyer.com/) has started one of the only student-loan focused law firms in the country. I highly suggest you take a look around his website, and maybe consider giving him a call. He does an excellent job of getting people out of pickles like this, and knows the dysfunctions of the various servicers better than the servicers themselves. Good luck to you.

[cold-type.livejournal.com]

FinAid is another source of information on financial aid -- including settlement of student loans. It suggests the agency might be more motivated to settle by September 30 -- the end of the fiscal year.
http://www.finaid.org/loans/settlements.phtml

[secretlyironic.livejournal.com]

I'm afraid this is not a situation with really good news for you. (Disclaimer: I work at American Student Assistance, but am not authorized to speak on this subject to the general public, so this is just me speaking, not speaking for the company). I can't be certain about your specific situation and I'm not a financial adviser, but I suggest you call your lender/guarantor immediately if you haven't already done so. Depending on when you got the loans, and what school they were for, the current holder will vary. For federal loans, you can check at nslds.ed.gov if you're not certain.

For background: If you do not make payments for 270 days and do not use deferment or forbearance to get permission to pause payments, your loan enters default. For most loans, the interest rate won't go up to a penalty rate the way it would for a credit card, but typically 120 days after entering default you can be charged collection costs. Those are brutal: It's between 18% and 30% of the outstanding balance. And of course interest builds up on all of that, so the daily interest cost increases dramatically.

If the collection costs have not yet been charged, you can avoid them by paying off the loan in full. That's about the only way to do it. If you can't do that, you can reduce them by paying off as much as you can - the fee is a percentage of the outstanding balance, so the more you pay, the less the fee will be.

You can use loan rehabilitation or consolidation to get it back out of default. Rehabilitation takes 9-10 months but removes the default from your credit report. Rehabilitation is faster, but leaves the default on your credit report. But in both cases, you'll still face the collection costs.

Deferment, forbearance, and plans like Income-Based Repayment are only available for loans in good standing. Depending on who holds your loan, you may be able to get them to accept a lower amount if you can prove financial hardship. But it's really up to the loan holder what they're willing to accept.

And as a warning: Bankruptcy is almost never a way out for student loans. There's some other background info on default at http://www.asa.org/in-default

There are a few other cases where the loan can be forgiven, but they are relatively rare: Total and permanent disability, fraud, etc. Background on those cases is here: http://www.asa.org/in-default/dispute