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Student Loan Settlement: What I Learned Settling $1 Million in Federal and Private Loans

August 26, 2019

Looking to settle student loan debt for pennies on the dollar? Let me tell you this: a settlement for pennies likely won’t happen.

How do I know?

In 2018, I settled about $1 million dollars in federal and private student loans.

Here are 3 private student loans totaling $61 thousand I negotiated for $24 thousand:

Student Loan Settlements Across the United States

If you’re wondering, I help student loan borrowers across the United States settle both federal loans and private loans.

Here’s another:

And here’s one where I negotiated a settlement of a $67 thousand private student loan my client owed National Collegiate Student Loan Trust for $6 thousand.

Results like these are why I laugh when people ask, “will student loans settle for less?”

Related: How National Collegiate Student Loan Trust Got Your Private Student Loan

Okay, so enough with the proof.

Let’s get to the lessons I learned about settling student loan debt.

I laugh when people ask “will student loans settle for less?” Of course, they do.
Stanley Tate

Quick Navigation

  1. Most people want to pay their student loan debt
  2. Student loan settlements usually need a lump sum payment
  3. Collection companies are difficult to negotiate settlements with
  4. Student loan settlements can take several months
  5. Be wary of too good to be true settlement offers
  6. Federal student loan settlements suck
  7. Private student loans offer better settlements
  8. Student loan settlements and credit scores

1. People Want to Pay Their Student Loan Debt

The thing is, each of my clients wanted to pay their student loan debt.

Some have been paying years and still saw there balances go nowhere but up.

Here’s what I mean.

Back in 2007, my client Heidi borrowed $33 thousand from Chase Bank to attend a now-closed school. (The fact her school closed is an issue for another day.)

Over the years, Heidi and her husband who co-signed the loan paid back over $50 thousand.

Her balance as of December 2018?

$87 thousand.

I know what you’re thinking: how is that even legal?

Here’s how.

Her daily interest rate was almost 19%.

Basically, the loan she got from Chase Bank was more like a subprime, usurious payday loan than it was a student loan you get from the government.

So what did Heidi do?

She got fed up and tried to get rid of her private student loan in bankruptcy.

I filed her case earlier this year.

Several weeks later, a lawyer for National Collegiate Student Loan Trust contacted me to let me know that they agreed the loans were dischargeable.


Stipulation for undue hardship discharge student loans

Eventually, Heidi got rid of her student loan debt in bankruptcy.

Heidi’s situation isn’t unique.

I have another client, Christine, who received $110 thousand in private student loans for an associates degree at a community college in rural Missouri.

So far, Christine has paid back over $40 thousand.

Her balance today?

$170 thousand.

There’s no way she’ll pay that back — not when she’s single with 3 children and earns $45 thousand per year.

So what did Christine do?

She filed a chapter 7 bankruptcy to get rid of her student loan as an undue hardship or, at a minimum, negotiate a settlement for an amount she can afford.

We did that earlier this year.

Later, we filed an adversary proceeding to discharge her private loans.

So far, one private lender agreed to discharge $35 thousand of her loan balance.

Younomics student loan stipulation to discharge undue hardship

Another has agreed to settle $32 thousand for $12 thousand at 0% interest payable over 36 months.

We’re still waiting on settlement amounts from her other private lenders; if not, we’ll see them at trial.

Let’s Negotiate a Settlement

2. Few People Can Settle Loans With a Lump Sum Payment

So here’s a big problem I see for clients who owe more than $50 thousand for a private student loan:

You typically need a large lump sum payment to get a good settlement.

What do I mean by a large lump sum?

At least $15 thousand.

In this economy, most Americans don’t have that money lying around.

Many private loan holders and collection agencies rarely authorize settlement terms that last longer than 36 months.

Usually, they have a hard time coming up with more than a few thousand dollars.

But when you owe tens of thousands in private student loans, access to a large lump sum is almost paramount to negotiate a settlement.

Here’s why:

Many private loan holders and collection agencies rarely authorize settlement terms that last longer than 36 months.

24 months is much more typical.

Let’s see this in practice.

You owe $50 thousand. Younomics agrees to settle for $25 thousand. They give you 24 months to pay that off. Your monthly payment without a down payment would be $1,042.

Do you have that money available each month?

But let’s say you have a $15 thousand lump sum. Now, given those same settlement terms, your monthly payment would be $417.

Much more doable, right?

This type of settlement is the exact situation my client Olivia faced.

She owed Navient $75 thousand for a private student loan.

After almost a year of negotiations off and on and a chapter 7 bankruptcy filing, we eventually settled her loan for $28,500.

That’s an almost 70% savings.

Awesome, right?

But get this.

She only had to put $8 thousand down.

Navient private student loan settlement letter

The rest she’ll pay over the next 23 months.

3. Negotiating Student Loan Payoff With Collection Companies Can Be Challenging

When it comes to settling student loans that have been placed with a debt collection company, here’s what you must know:

The customer service experience will suck.

You would think since you’re trying to pay them, they’d be easy to get in contact and they’d be willing to work with you.

Sometimes that’s true.

But most times? Just the opposite is what you find.

They don’t answer the phone.

Or the call connects, but after waiting on hold for several minutes, the call drops.

Other times, you actually can get through but when you tell them you want to settle they offer you an amount you can’t afford on a schedule you’ll never meet.

I hear stories like this all the time from clients.

Thankfully, that’s not usually my experience.

Most times, the settlement process goes pretty smoothly.

First, I start by identifying the account manager or supervisor responsible for handling the account.

Next, I find out what their settlement offer is. After that, I provide a context of your financial situation and then present a counteroffer. Rinse and repeat until we settle.

During the entire settlement negotiations I remember this:

Sure, we have competing goals — they want you to pay as much as possible; I want you to pay as little as possible — but we also have a shared goal: getting a settlement in place.

Because of that commonality, there’s no need to be rude or nasty to one another. Doing so helps nothing. And I don’t do things that aren’t helpful.

4. Settling Student Loan Debt Takes Time

On average, I took about 9 months to settle private student loan debt.

Loans owned by Navient, Wells Fargo, and Discover were some of the slowest to settle.

Federal student loan settlements, however, settle much quicker. Those typically take less than 2 months to settle.

When you think about it, that disparity makes sense.

The federal government’s strict guidelines control how much they’re willing to settle (sometimes called a “compromise”) a federal student loan for.

Typically, a federal student loan settlement will usually be for no less than 90% of current principal and interest payable between 30 and 90 days.

Related: How to Settle Federal Student Loans For Less Than You Owe

Those guidelines don’t exist with private student loans.

A private student loan settlement can be for a lump sum, fixed monthly payments, or a combination of both.

As for time, the settlement can stretch over several months. (24-36 months is typical.)

5. Trust Your Gut If the Loan Settlement Offer Seems Unbelievable

Wondering if the deal you got from a debt collection company is too good to be true?

Your gut might be trying to tell you something.

Every now and then, I’ve seen debt collectors send letters offering to settle the principal balance less collection charges for 10 cents on the dollar.

On the surface, that sounds awesome.

But when you look closely at the loan, what you’ll likely see is that the loan is past the statute of limitations.

In effect, the creditor is offering you to settle a student loan you’re no longer legally obligated to pay.

Of course, every situation is different. And it’s totally possible you’re getting an awesome deal for a debt you’re still obligated to pay. But in my experience, you better read the fine print before you agree to pay anything.

6. Federal Student Loan Settlement Options Suck

Here’s the deal:

The US Department of Education’s guidelines makes it impossible for most student loan borrowers to settle their student debt.

The Department of Education offers 3 standard settlements:


Option #1: Pay your current principal balance, plus any accrued unpaid interest. Collection charges and fees are waived


Option #2: Pay the total principal with half of your interest balance (the other 50% is forgiven)


Option #3: Pay 90% of the total principal and balance owed (10% discounted)

7. How to Find out if Your Loans Are Federal or Private

The easiest way to check what type of student loans you have is to view your loans with the National Student Loan Data System. That system has all your federal student loans. If you can’t log in, another option is to call the Federal Student Aid Information Center at 800-433-3243. They’ll be able to give you information about all your federal loans. Compare that information against your credit report. Any student loan on your credit report you haven’t already identified as a federal loan is likely a private loan.

Few Americans have tens of thousands in their bank account. And if they do, it’s usually in a 401k or some other retirement vehicle. And that money, in my opinion, is better kept in a retirement account rather than trying to settle defaulted loans.

The federal government simply has too many flexible repayment plans like income-based repayment or Revised Pay As You Earn to keep your monthly payments low while you contribute as much as you can towards retirement.

Private Student Loan Debt Settlements Offer Better Terms

When it comes to negotiating settlement agreements, private student loans offer awesome settlement options — at least when compared to federal loans.

As I mentioned earlier, federal student loan settlements will usually be for no less than 85% of the current loan balance less collection charges payable in no more than 90 days.

Private loan settlement agreements vary.

Related: Here’s How to Get a Private Student Loan Debt Settlement

Sometimes you’ll pay 60 cents on the dollar. Other times you’ll pay closer to 30 cents.

About Strategic Default

I get it. It’s frustrating to make payments for years only to watch your balance grow. At that point, it makes sense to entertain a strategic default to get an affordable settlement agreement. But the problem with that strategy is that it’s arguably fraud (that’s for a judge to decide) and it can damage your personal finances by ruining your credit report and leaving you exposed to wage garnishment and having your income tax refund and Social Security benefits offset. And it also makes you ineligible for student loan forgiveness programs like Public Service Loan Forgiveness.

What your settlement will look like, if you settle, depends on a number of factors, including:

  • Whether you have a cosigner
  • Your credit score
  • Your savings
  • Your earnings
  • Whether you’re disabled
  • Your last date of payment
  • Who the private lender is

Basically, there’s really no way to predict what your settlement will look like. You just have to negotiate your way to the best deal.

8. Impact of Student Loan Settlement on Credit Score

The thing about student loan settlements is that they come at a cost:

Your credit score will take a hit.

You’ll rarely negotiate a settlement unless you fall behind on your loan payments and end up in default.

And if that happens, your credit score will take a hit from the late payment history and the default status marked on your trade line.

Negotiating a settlement may not help remove that negative information.

Sure, you can always ask the loan be marked paid in full or the late payment history is deleted, but that rarely happens.

More often than not, I find asking for “pay for delete” simply slows negotiations.

The better move is to negotiate the settlement, pay off the loan, and then work with a credit repair professional to remove the negative information.

Negotiate a Settlement
Student Loan Lawyer Tate

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