A debt settlement is a process by which you can work out an agreement with your lender to reduce the total amount of debt you owe by paying a final large lump sum. Here we are talking about seeking a settlement when your student loans are held by a private lender (not federal student loans).
Private lenders are not required to agree to private student loan settlements nor to cancel debts in certain circumstances. Because of this, most private lenders will only agree to a settlement if this seems to be the only way they will get any of their money.
Are You Eligible For a Settlement?
If you are making regular payments on your loan, this means your loan is in good standing and is not eligible for settlement. Late payment will cause your loan to be considered delinquent.
A delinquent loan will eventually go into default. Private student loans are considered to be in default after 120 days of no payments. Once your loan has entered bankruptcy, you can request a settlement.
If you do not wish to file for a settlement right away, you can apply for a forbearance. During a forbearance period, the lender agrees to postpone payments on your principle as long as you continue to pay the interest payments.
Forbearance periods for private student loans usually last no more than a year, with a renewal required after six months. You must provide financial documentation to support your request for forbearance.
Private Student Loan Settlement
The settlement amount will vary from lender to lender. It will usually be somewhere between 50 and 90 percent of the loan. You can choose to work with a settlement company that will do the heavy lifting for you, or you can try to negotiate a settlement yourself. Either way, a payment is not guaranteed, and results will vary widely.