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Does Debt Settlement Work For Private Student Loans?

Posted on May 30, 2009 at 2:06 pm
Can you settle private student loans, if so how should I negotiate?

Steven Rep Points:
Posted on May 30, 2009 at 2:24 pm
Hi Lou,I am sorry to inform you that student loan debt cannot be settled, as student loans are federally secured. I would suggest contacting the lender and seeing what can be done to lower your monthly payment so, at the very least, you can get some relief in the meantime. I understand that this is usually an option for most people who are having difficulty affording their monthly student loan payments. (Guest) Rep Points:
Posted on May 30, 2009 at 2:37 pm
What does "federally secured" mean?
Posted on May 30, 2009 at 2:55 pm
In simple terms, it means that the US Government guarantees the loan.

Debt_Guru Rep Points:
Posted on May 31, 2009 at 10:41 pm
Steven - quick correction...Lou from Delaware is specifically referring to private student loans, which definitely aren't secured federally.  In fact that's exactly what makes them different from federal student loans - private lenders assume 100% of the risk when it comes to giving out these types of loans. So back to the original question:  can you settle private student loans?  The answer is maybe. What makes private student loans different from standard unsecured personal loans is they cannot be discharged in bankruptcy unless you meet very specific requirements and therefore much of your leverage is lost because your creditor knows that you can't really escape the debt.  That said, because there are collection costs, the possibility that you are judgment-proof (legally protected from wage garnishment, property liens, etc), or that you are unemployed and have no assets, settling may still make sense for them.  These loans definitely still follow the standard collections process and I know that they offer settlements once the loan has gone to a third-party for collection, albeit at higher percentages.  

Karess Rep Points:
Posted on June 4, 2009 at 12:29 am
A private student loan may not be settled, but it can be consolidated with other private student loans as well. Choosing to consolidate these with government-secured student loans simply cannot be possible, because the lower interest rates on the latter are not available for the private student loans. If you have more than one of these, consolidating your student loans will allow you to have a streamlined payment and lower interest rates and monthly payments, as much as a longer time period to pay off your loan.

655321 Rep Points:
Posted on July 7, 2009 at 9:13 am
This is confusing. Debt Guru says that PRIVATE LOANS can in fact be settled. Karess says they cannot. Is that correct? I big distinction needs to be made here between private loans, which has nothing to do with the government, and those that have everything to do with the government, and which you'll owe for an eternity.

Steven Rep Points:
Posted on July 7, 2009 at 9:19 am
Guru made an accurate post- I originally did not differentiate between the two and mistakenly referred to "private" loans as "government" loans. Essentially it is possible to settle private student loans. The potential is most likely greater if the account is in collections. Federally backed student loans typically cannot be settled. Sorry for the confusion.

The Question Rep Points:
Posted on July 26, 2009 at 9:49 pm
What advice would you give to a girl who has just recently acquired a private loan for her college education. She projects that she'd be $60,000 in debt by the time she earns her masters.

itsnatasha Rep Points:
Posted on July 26, 2009 at 10:00 pm
She wouldn't be alone in that situation. If she really wants to improve her life via higher education, I think that she should push through with that private student loan, and since the previous posts said that it is possible to settle private student loans (especially if they're already with collections) then my vote is for her to go finish school and settle later.
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