How to Cut a Deal With a Student Loan

Defaulting on a federal student loan can hurt your credit score and result in your having to pay additional interest and fees. However, cutting a deal with your lender can help get your loan out of default. Getting your federal student loan back on track with an affordable monthly payment can eventually improve a damaged score. Know your options, and then discuss them with your student loan lender.

Instructions

1. Determine whether you can negotiate a cheaper interest rate to lower your payment. Student loan lenders have the authority to modify your current interest rate. Discuss any economic hardship to see if you qualify for help. A lower rate lessens the loan payment on your federal student loan.

2. Skip payments until your money situation improves. By implementing a deferment or a forbearance, you can stop making your federal student loan payment for several months. Forbearance refers to a specific period wherein lenders allow borrowers to stop making their payment without penalty. Interest continues to accumulate during a forbearance period. Deferment is similar to forbearance, and also allows borrowers to postpone payments on their account. However, interest does not accrue over the deferment period. No employment or inadequate income are criteria for skip-payment options. Call your student loan provider to submit a hardship request.

3. Ask your student loan lender to wipe out any late fees or collection fees. Debt settlements are not common with student loan debt, and lenders will rarely settle for less than the balance. However, you can ask the lender to remove any fees attached to the account. Explain why you've missed your payments to see if your situation justifies removal of fees.

4. Ask about income-based loan repayment for federal student loan. The student loan lender agrees to base monthly payments on your income and what's affordable for you, and then cancels the debt after 25 years.

Tips & Warnings

• Graduates who receive private student loans from a bank will need to contact the financial institution for information on hardship programs. The bank may allow forbearance or loan modifications, or borrowers might qualify for a low-rate consolidation to lower their loan payment.

References

• Bankrate; Settling Student Loan Debt Not a Slam Dunk; Christina Couch; August 2010
• Bankrate; What to Do When You Can't Pay Student Loan; Christina Couch; June 2009