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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.
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?
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.
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