topic Re: Settle student loans for less (no lates) in Student Loans

Settle student loans for less (no lates)

Anonymous — Tue, 25 Jul 2017 14:26:05 GMT

So I've seen people post on other forums and even news articles about people being able to settle their student loans with a lump sum payment. I understand it's not common, but it's not rare either.

I'm just wondering with all the student loans going into default these days, do you think a federal student loan servicer would be willing to settle for just a little by less?

Amount borrowed: $31,000 (approximately)
Total Owed: $37,500
Just made a $1,000 payment so current balance is $36,500 and loans are currently in forbearance until 3/2018.

So far over $5,000 in interest, not to mention the origination fees already paid...that's another $3,000.

I'm just wondering do you think if I offered a lump sum of $34,000, giving them $3,000 profit from what was borrowed plus the $3,000 in origination fees paid, they would consider it? It's only $2,500 less than the full balance and they'd have 0 risk of future default, especially considering I'm in forbearance right now and a lot of people default these days.

Re: Settle student loans for less (no lates)

Anonymous — Thu, 27 Jul 2017 06:39:45 GMT

Bump

Re: Settle student loans for less (no lates)

Anonymous — Thu, 27 Jul 2017 19:48:04 GMT

Personally, the only time I have ever heard of people settling their student loans is when they were in default. I guess unless you have shown that you are unable to pay, I don't see why they would settle for less. They can either keep you paying the full amount and earning interest or they can settle and lose out on money. I just don't see it happening.

Re: Settle student loans for less (no lates)

creditninja9000 — Thu, 27 Jul 2017 21:57:55 GMT

Yeah I've been asking myself the same question, because I'd love to just save up a lump sum and offer to pay back early but pay less.....

However I have a good paying job now, so it's more likely that I will get sued and forced to pay and end up with the defaults or late payments still. I doubt any lender would take less, because why take less when they can get it all and you can surely pay right?

Re: Settle student loans for less (no lates)

Anonymous — Fri, 28 Jul 2017 06:14:14 GMT

Well in my situation I'm currently in forbearance.

I just figure if I make a reasonable offer, they profit, they get paid back 100%, and everyone's happy. There's never a guarantee they'll get repaid 100%, the economy could go sour, lose your job, die or even qualify for student loan forgiveness through public service in which case they wouldn't get the amount loan back they'd end up with less money.

It's all calculated risk. If you read my original post in it's entirety 34k out of the 37k balance is a very reasonable offer, they would end up with 4K profit, actually close to 5k because I made a 1k payment.

I just think even a borrower with a great job, income everything there's always some risk. Unintentional, but still risk.

A bird in the hand is better than 2 in the bush

So you don't think at all it seems rational or reasonable to accept 34k right now out of 37k over 10-20 years? And of course there will be more interest over the years but also more risk the current default rate is over 11%...

Re: Settle student loans for less (no lates)

empiror22 — Sun, 30 Jul 2017 04:34:45 GMT

I think your math about how much is owed is off. If you borrowed 35k @ 5%, your payment is $372, of which your first payment only has about 225 towards the principal, there you paid 145 in interest. My guess is your total interest is about 5k -7k( I didn't check the today just a rough guess). Therefore they are really losing about 10k on your loan again roughly.
The other thing to think about is how hard it is to discharge federal student loans ie very hard, and federal student loan can stay on credit for a long time and always be collected from you until death and maybe beyond.
I guess what I'm saying is there is no real reason for them to give you a "deal" , I wish it was like this but they have no real incentive if your paying.

Re: Settle student loans for less (no lates)

Anonymous — Sun, 30 Jul 2017 05:05:51 GMT

Total borrowed was $30,000 maybe 31k at the most.

So offering 35k they get 4-5k in profit, that Math is very simple.

I'm currently in forbearance because I don't have income sufficient to make payments...so that may be something for them to consider.

The full balance if paid today is 37k. Meaning if I paid in full today without an special offer/arrangement they would only be getting $2,000 more than if they settled for 35k.

To discharge a federal student loan through Public Service is a fairly straightforward route. Say I make $300 payments for 10 years then I have it discharged through that route (just assume). That means after 10 years of dealing with me they get a total of $36,000 ($1,000 more than they could get today hypothetically). Over those 10 years if they put that $35,000 into a CD, investment I'm fairly certain they'd get a lot more than $1,000 profit.

I'm just saying A LOT of people end of defaulting, and if I were a loan servicer I would look at it as well they owe 37k and are offering 35k, original loan amount was 30k so we made 4 or 5k profit off of them already, there's risk if we do payments over years but no risk if we take payment right now.

That's how I'm viewing it, as they're already 4-5k in profit accepting 35k..."Cash out while you're up"

Is that not a way to view it? I just don't see a logical reason doing risk analysis would say accept the offer. It's not like I'd be offering less than what was loaned to me...

Re: Settle student loans for less (no lates)

creditninja9000 — Mon, 31 Jul 2017 19:25:35 GMT

Doesn't the amount you don't pay get reported as taxable in some form? There are prob a few questions to ask yourself:

- Is your loan currently in default (negative status)

- Will your loan be reported in a negative manner if you settle the debt?

- Will you pay taxes on the amount you didn't pay as part of the deal?

The answer to some of those questions might bring you a little closer to feeling like it may or may not be worth the damage.

Re: Settle student loans for less (no lates)

Anonymous — Mon, 31 Jul 2017 19:39:46 GMT

I just don't see them taking a settlement offer at this point. As you point out, yes, defaults are on the rise however if it were to get to the point where your loan was in default, it would have accrued more interest in the meantime, let alone over the lifetime of the loan. They will get their money one way or another (wage garnishments, tax returns, etc) so I really don't see an incentive for them to take an offer like that. Personally, by the time my loans are paid off if I only do the minimum payments I think I will have paid approximately $30k in interest over the life of the loan, so when you view it that way, your offer looks terrible! Also, I just don't think that they would consider it unless you can prove some type of financial hardship (which if you have $30k+ laying around to pay the loans off, you can't prove), and even then they would most likely go the forebearance/deferment route.

Also, you mention PSLF, which may or may not exist in the next few years if the current administration has their way. You also cannot miss a single payment while making those 10 years of payments, so that doesn't look like a good way out at the moment either. Personally, I am fortunate enough to be in a situation where I could do a lump sum payment on my student loans, but I am making more money on my investments (on average) than my interest rate, so you could also look at it that way. You are saying that the government could make more money by investing your money, but really you should be looking out for yourself, not to mention the interest you pay is a tax write-off (up to $2,500). Also, likely fresh out of college you would have a thin credit file, so the payment history that you can create by making payments on your student loans is one of the most beneficial things you could do in my opinion

Re: Settle student loans for less (no lates)

Anonymous — Mon, 31 Jul 2017 23:51:08 GMT

Hintz- Actually from the day student loans start reporting you gain points from them, especially since the government pays the interest it appears to FICO that payments are being made (even if you're not making them). My credit file isn't what I would call thin.

I am in forbearance for lack of income which I can prove...it's just that in the next 4 months my fiancée may be getting a 50k settlement for a bad accident she was in and she offered to pay my student loans. I'm just going to get some type of discount, anything...they've already made a lot of profit off me.

Re: Settle student loans for less (no lates)

scvbd99 — Fri, 04 Aug 2017 05:18:12 GMT

If these are federal student loans, it's 100% out of the lenders' hands about whether or not they'd prefer your settlement terms.

They have very strict federal guidlines they have to adhere to.

So the best bet would be to find out exactly which government agency regulates your federal student loans, and ask them if there's anything written in law about settling federal student loans outside of default. I"m betting there's not, but I don't know.

For private loans, I have no idea.

Re: Settle student loans for less (no lates)

Anonymous — Fri, 04 Aug 2017 05:42:31 GMT

There's nothing in the law about settling in default or out of default. I just don't see why settling for more than the amount loaned is an issue.

Re: Settle student loans for less (no lates)

scvbd99 — Fri, 04 Aug 2017 16:39:58 GMT

If it benefits the lender (and if the Dept of Ed/CFPB allows it), they'd do your deal.

I'm curious about this. You going to try it?

Re: Settle student loans for less (no lates)

Anonymous — Fri, 04 Aug 2017 16:59:54 GMT

I mean I would say it benefits them because what if later in life I can't repay and go into default then they have to settle for pennies on the dollar? That's a risk.

It's only a 2k discount on interest that's accrued they would still be making 5k profit in the end anyways.

Is like to try it. If the money comes through I will. It's just they have NO collateral like a car loan or home loan do so they have no real thing to forclose or repo. Additionally I own my own business so they can't exactly garnish my wages because I don't get a paycheck per se. They're ONLY leverage is holding my credit score hostage, which if it means paying 5k instead of 35k is a big incentive for me to not pay, that's $30,000 profit.

All this to say, 35k now seems like a much better deal than waiting 5-10-15 years to hope to collect more.

Re: Settle student loans for less (no lates)

scvbd99 — Fri, 04 Aug 2017 17:12:39 GMT

If you've never had lates, they probably deem you pretty low risk.

They're in a position to make well over a thousand in interst off you every year unless you pay down a lot of the principal in a lump sum. That would look pretty attractive to them over as you said 5, 10, 15 years.

I can't imagine they'd do it, but again, are you going to give it a try? Let us know if you do.

Re: Settle student loans for less (no lates)

Anonymous — Fri, 04 Aug 2017 18:11:42 GMT

Well being in forbearance is a slippery slope to default

If the money comes through I will definitely make the offer.