Okay, to be honest there really isn’t “one weird trick” to negotiate private student loans. In reality, private student loans can be some of the most difficult financial products to work with after origination.
Private student loan lenders are notoriously inflexible, and due to private student loans being exempt from bankruptcy, they can present serious problems to borrowers who experience unforseen financial or medical issues. Even borrowers who make payments religiously, on time every month, still often find that due to fee structures and high interest rates, their principal doesn’t seem to go anywhere even after multiple years of repayment.
Lenders have an obligation to provide borrowers with reasonable and fair repayment terms, especially when it comes to accrued interest. They also have an obligation to provide loans that are not usurious – that is, unfair and mainly beneficial to the lender. Trying to negotiate private student loans with your lender can be difficult and one sided, since the person you are talking to probably spends 8 or more hours per day trying to hone their techniques to bring in the most revenue (via client payments, late fees, and interest) to their company as possible.
Since most people don’t have a lot of experience dealing with the complexities of private student loans to start with, trying to negotiate with a seasoned in-house or third party collection agent can be a mismatch unless the borrower has done the research regarding the limations of debt collection or has a professional negotiator assisting them.
Having someone in your corner who is just as experienced, or more experienced, than the collector on the other end of the line can make the difference in a successful settlement negotiation. Once the settlement is agreed to verbally and by paper, it may feel like it’s time to relax, but it’s not over yet. Debt collectors receive well over 100,000 consumer complaints per year, and I’ve spoken to several borrowers who thought they had a settlement agreed to only to find the “settlement” amount applied as a payment on the full balance.
A successful negotiation is just as much about not doing certain things as it is about taking action. If you know how to navigate the pitfalls, it is most likely possible to negotiate a reduced settlement amount with your lender. Unless they are a nonprofit, most private lenders have an incentive to settle if an account is past due. They understand the fundamental rule of collections: once an account goes late, the chances of ever collecting on it again grow dimmer with each passing month. By renegotiating the contractual agreement in the form of a reduced sum settlement, it’s possible to take care of an outstanding private student loan for less than 50% of the balance in some instances. Not all lenders will settle, and it’s generally a case by case approach, but it does seem like private student loan lenders are starting to see that their rigid inflexibility is driving people to default on their private loans due to no other viable options.
Recently, Discover and Wells Fargo announced new modifications that would be available for certain private loan borrowers, but it remains to be seen if that will be an effective solution.
In many cases, counter-intuitive though it may seem; settling a private student loan that has gone delinquent is often the fastest and least expensive way to resolve an account, especially when settlements can be in the mid-40% range and sometimes lower. While it’s still a relatively new area within personal finance, some experienced debt negotiators have been able to adapt to the unique circumstances of private student loan settlement and not only get reduced sum settlements, but negotiate structured settlement terms as well. For examples of private student loan settlements, be sure to check out the Slideshow on the homepage.
Here’s some further information about student loan settlement with Navient.
If you’re dealing with an unreasonable debt collector or are just interested in getting more information on settling your private student loan for less than the full balance, contact me here. And remember, you do have options when it comes to your private student loans.. even if your lender isn’t telling you about them.