How to Offer a Settlement on a Private Student Loan
When acquiring funding for college, you have the option of applying for federal aid or getting a private student loan from a bank. Private student loans are different from federal loans. Federal loans do not require a credit history or credit score, while private loan lenders do examine credit. Another difference is the ability to settle these loans. The U.S. Department of Education seldom works out settlement agreements on federal loans, but if you have a private student loan and are unable to make the payment, you can possibly negotiate and settle for less than you owe.
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Instructions
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Gather evidence of financial need. Banks only negotiate settlements if you can provide confirmation of a financial need. Perhaps you lost your job or can't afford the balance on your present salary. Banks will require a detail explanation of your situation and financial documents such as banks statement, employment verification and income statements to see if you're eligible for a settlement.
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Add up your disposable income to see if you can afford a settlement. Installment payments are typically not accepted on a debt settlement for a private student loan. Settling the debt might entail making one lump payment to satisfy the debt. Options to settle a private student loan might include using money from a severance check after a job loss, an inheritance, a home equity loan or a loan from parents.
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Approach your lender to negotiate. Offering a lowball settlement is sure to trigger a rejection. Be reasonable, but offer lower than what you're prepared to spend. This allows room for negotiations. For example, if you owe $13,000 but you're able to settle for $10,000, you could begin negotiations around $7,000.
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Request written proof of your agreement. Hold off payments until your bank provides a written copy of this agreement.
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Prepare to pay taxes on the settled balance. The amount forgiven by a lender on a private student loan is considered income from a tax standpoint, and you will pay taxes on this amount. For example, if the lender settles for $4,000 less than the balance owed, you must pay taxes on this $4,000.
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