How do you negotiate a private student loan debt settlement?

You can negotiate a private student loan debt settlement after your account has reached default status by offering a lump-sum payment to your lender or assigned collection agency. Some lenders may be willing to negotiate a settlement before the debt defaults, so it’s worth asking them about that possibility once you’re no longer able to pay. Generally, the older your debt is, the more likely you will be able to reach a settlement.

As a rule, student loans cannot be settled if they are in good standing. It is possible for private student loans to reach default status after one missed payment, but 120 days is most common. You can consult the terms of your loan agreement to find out when your account will be in default.

At this point, your lender may pursue collection efforts, but as a private lender, they have less power to do so. For example, your lender would need to obtain a court order to begin garnishing your wages for payment.

Do Your Homework

Before beginning negotiations, prepare for the questions that your lender or collection agency will inevitably ask related to your income, expenses, and inability to make monthly payments. Also, do the math on what settlement you could afford. Generally, student loan lenders prefer to accept settlements in the form of a lump sum, but it’s a good idea to come up with a monthly payment as well in case that’s a possibility. Finally, decide if you want to hire a debt settlement company or pursue debt settlement yourself.

Begin Negotiations and Reach an Agreement

Reach out to your lender or debt collector to begin negotiations. Make an initial offer and be prepared for any counteroffers. You can generally expect to settle for between 30% and 60% of your original balance in the form of a lump sum. Make sure you can afford the agreement before accepting. After acceptance, get a signed copy of your settlement agreement.