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Here’s When it Makes Sense to Get a Lawyer’s Help for Your Student Loans

April 29, 2019

Trying to get a handle on your student loans but don’t know where to begin?

Or maybe you know where to begin but feel like you’re getting a raw deal from a student loan servicer or debt collector.

Whichever it is, you’ve tried to do things yourself but now you want help.

Enter a student loan attorney.

In this post, I’ll explain how a lawyer can help with your student loan issues and much more.

Can a Lawyer Help With Student Loans?

Short answer? Yes. A lawyer can help with student loans. In particular, you’d want a student loan lawyer’s help when you’re facing default or wage garnishment, or if you’re trying to discharge your student loans in bankruptcy as an undue hardship or settle a delinquent private student loan debt.

Why?

Because that student loan attorney will know what to do and what to say when dealing with the United States Department of Education or debt collectors.

The simple truth is that servicers like AES, Great Lakes, FedLoan, etc. weren’t designed to have your best interest in mind.

As one of the lawyers for Navient said about Navient’s marketing that assures student loan borrowers the company exists to help them successfully navigate paying their student loans:

“It’s friendly talk, it’s puffery, but it is not the stuff of a legal obligation to now become your financial counselor,”

Navient lawsuit article

In reality, student loan servicers and debt collectors exist to make their stakeholders money.

The way they do that is not by getting you into the right repayment plan or by helping you quickly pay off your student loans or qualifying you for federal student loan forgiveness programs.

No.

Just the opposite is true.

Related:

They do that by keeping you in repayment for as long as possible.

A student loan lawyer, on the other hand, is obligated to give you legal advice while doing what’s in your best interest.

They’ll tell you which student loan repayment plan is best for you, whether loan consolidation is right for you, or how to lower student loan payments, etc.

And they may even do it as part of a free consultation. (I don’t offer those but others do.)

That duty is why it makes sense to get a lawyer’s help with your student loans.

How Much Does a Student Loan Lawyer Cost?

Hiring a student loan lawyer can cost you between $500 and $5 thousand dollars in legal fees depending on what help you need. For instance, help consolidating loans or lowering monthly payments is typically cheaper than lawsuit defense or getting rid of student loans in bankruptcy.

Related: How to Buy a Home With Massive Student Loan Debt

While that may seem like a lot of money (especially when you consider many things a lawyer does you can do yourself die for free) hiring a lawyer to resolve your student loan issues is cheaper than what could happen if mistakes are made.

Here’s what I mean.

All tax season, people have contacted me telling me their tax refund was taken for defaulted student loans. Many complained they were enrolled in a rehabilitation agreement and had been making payments to get their loan out of default. So they didn’t understand why their refund was taken.

These people lost thousands of dollars in refunds they were expecting to help catch up on bills, pay rent, get their car fixed, etc. all because no one properly explained to them that you have to do more than be in a repayment agreement to stop your refund from being taken.

A student loan lawyer could prevent that from happening.

Money aside, the biggest reason why hiring a student loan lawyer makes sense no matter the cost, is peace of mind.

As my client told me, although she’s highly educated and can handle her student loans herself, she’d rather hire someone whose calling it is to help people solve their student loan problems.

Can a Lawyer Negotiate Student Loan Debt?

A student loan lawyer can negotiate a settlement of student loan debt. Once granted third-party authorization, the lawyer can work with the student loan lender or debt collector to reach a settlement for a lump sum, monthly payments, or a combination of the two.

Sidenote

So you know, you don’t need a lawyer to negotiate a student loan debt settlements. But the same is true of hiring a mechanic to change your brakes.

Can You Make a Settlement on Student Loans?

You can settle student loan debt, but there’s no guarantee that you will. Your settlement options often turns on the lender’s willingness to settle. Sometimes, they can be motivated to waive collection charges and unpaid interest. Other times, they’re willing to waive part of the interest balance and principal balance. And on rarer instances, they’re willing to settle the student debt for pennies on the dollar.

How your settlement agreement ends up looking will likely be influenced by several factors:

  • Your overall balance
  • When the loan was made
  • Whether it’s a federal loan or private loan
  • Whether the loan is in default
  • Whether the loan is with a collection agency
  • How long it’s been since the last payment was made
  • The presence of a co-signer
  • You and your cosigner’s credit history
  • You and your cosigner’s overall financial health
  • You and your cosigner’s physical health
  • Whether a lump sum payment is available

In addition to those factors, there’s also the loan holder’s settlement guidelines.

Here’s what I mean.

In my experience, I’ve gotten better initial settlement offers from National Collegiate and Younomics, than from PNC Bank or Discover student loans. (When companies are difficult to settle with, sometimes we wait until the loan goes to a debt collector and then we start settlement negotiations again.)

Sidenote

Settlement offers from private lenders are almost always better than offers you’ll get from the federal government. The US Department of Education has tight guidelines that limit debt settlements to 90% of the loan balance payable within 30 to 90 days.

Because there are so many factors involved in settlements, it’s difficult to say what your settlement amount will be.

Quite truthfully, there’s no one answer. It all depends.

But to answer the question of “can you settle student loans?”

Absolutely.

Can You Settle Student Loans in Good Standing?

While it’s possible you can settle student loans in good standing, I’ve never seen it done. Typically, you have to be in default to negotiate a student loan settlement. Think about it. What incentive is there to settle a student loan that’s being paid on time?

If payments are being made as agreed, the smart financial move is to let the payments continue. That way the greatest return can be realized on the investment.

Related:

Remember, the loan was made to you with interest.

So long as you’re making your payments as agreed, then loan holder stands to make a lot more money than was lent to you.

But when payments stop, the incentive changes.

Now, money is no longer coming in. And, if it’s a private student loan, there may be no assurances payments will ever be made again.

Sidenote

Remember, private student loans don’t have the same collection powers (wage garnishment, tax refund and Social Security offset, etc.) as the Department of Education has with the federal student loan programs.

And with that uncertainty in place, you can see why it’s possible to settle student loans that aren’t in good standing.

Does Settling Student Loan Debt Hurt Your Credit?

The process of settling a student loan can hurt your credit score. Since you’re unlikely to negotiate a settlement unless you’re in default, your credit score will reflect a late payment history. That late history can drop your score by several hundred points.

The actual settlement itself, however, typically has a positive effect on credit scores. At least that’s what my clients tell me.

It’s not unusual for a client to contact me a few months after I’ve negotiated a settlement for them, to let me know their credit score has increased by several points.

Why exactly that is, I’m unsure.

Most of their settlements didn’t include a provision to mark the debt “paid in full” or to agree to no longer report late payments.

Sure, that’s happened in a few instances.

But it’s not a standard outcome by any means.

That’s why I say I’m unsure why their scores went up.

But hey, why doesn’t matter so long as your score increase, right?

Final Thoughts

You should be able to handle your student loans without involving a lawyer.

But the problem is that the companies that have your student loans often aren’t interested in doing what’s best for you.

Their loyalty lies elsewhere.

So when it comes down to doing what’s best for you or them, they’re going to choose them more often than not.

When that tension exists, hiring a student loan lawyer to help with your student loans makes all the sense in the world.

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