How to Negotiate Principal on Student Loan Debt
After the 2007-2008 school year, 86 percent of students completing their undergraduate degrees had some form of student loan debt. The average amount of that debt was almost $26,000 per student. While there are some advantages to carrying that debt, such as deductible interest, carrying so much debt into the future can really dampen your career plans. You may be able to get the lender to reduce some of the principal you owe by showing financial hardship and negotiating with the lender directly. This can save thousands of dollars and years of monthly payments.
Other People Are Reading
Instructions
-
-
1
Gather all of your monthly bills. This includes any rent or housing, car, insurance, student loan and credit card payments. Add up the total amount you are spending each month.
-
2
Calculate your take-home salary. This is the amount of money you make after taxes, Medicare and social security have been removed from your check. Determine the discrepancy. The larger the discrepancy, the greater chance that the lender will respond to a settlement offer or principal reduction.
-
-
3
Contact the lender services department for your student loans. Explain to the representative that the payments you are making on a monthly basis are too high given all of your other expenses. Be sure to detail any other hardship occurrences in your life as well, such as one family member losing a job, a death in the family or lost hours at work that cause a reduction in pay.
-
4
Ask for a smaller principal amount on your loan. The lender may try and offer a lower interest rate, or hardship deferment on the loan. However, without a principal reduction, the balance that you owe remains the same. Continue to explain that if the principal amount was reduced, so too would the payments. Offer to provide evidence of your other bills, and how you have amended your life to try and make the payments work.
-
5
Offer a lump sum of money. This is another tactic which may get the attention of the loan company if the principal reduction is not working. By offering a lump sum of money, the lender is getting their money now, instead of spread out over time. If you have paid interest for several years, they might still have made money on the loan. Getting their lump sum allows them to make a loan to a new person.
-
6
Get the details in writing. Ultimately it is up to the lending company to reduce your principal balance. However, if they do agree to reduce your principal or take a lump sum for the amount of money owed, then be sure you get that in writing on their letterhead. That way, if they ever come back for more money you have proof of the deal.
-
7
Send payment with a cashier's check. If you send a personal check, the student loan company will see your bank account information. Sending a cashier's check will block them from trying to withdraw additional funds. Even if you have the new contract in writing, it will take a lot of paperwork and time to clear up any mistakes that were made.
-
1
Tips & Warnings
The government will discharge Federal Student loans under certain hardship circumstances. For instance, if you die, your relatives may apply to have the debt discharged. Other ways the debt can be discharged include being permanently disabled, or discovering that the college you attended has closed or lost its accreditation. See the link to the Federal Student Aid website below for more details.
References
Resources
- Photo Credit student image by dinostock from Fotolia.com
