Negotiate a settlement
Student loan settlementis possible, but it comes at a cost: you and your cosigner’s credit scores will take a hit, and collection fees may be added to the loan balance. You can’t settle a loan that’s in good standing or delinquent. You have to miss payments and be in or near default before your loan holder will agree to settle. You also have to have enough cash to pay the settlement amount in a lump sum or over a few months.
On top of those costs, there aretax implications of settling student loan debt. You may have to pay the IRS taxes on the difference between the settlement amount and the loan balance.
Forgiveness options
Learn More:Student Loan Debt Relief Attorney
Get a discharge in bankruptcy
Bankruptcy might be an option to get rid of private loans. But to get any relief, you have to follow a two-step process:
File a Chapter 7 or Chapter 13 bankruptcy.
File an adversary proceeding with the court.
Theadversary proceedingis a lawsuit where you file a written complaint asking the judge to wipe out your student loan debt. To win, you’ll need to prove one of two things:
You and your dependents will suffer undue hardship if you’re forced to repay the loans.Read more abouthow to prove undue hardship for student loans.
The private loans aren’t protected from discharge because they exceed thecost of attendance.Read more about how to get aprivate student loan bankruptcy discharge.
Learn More:Can You File Bankruptcy on Student Loans?
File a lawsuit
Lawmakers have passed laws like the Truth In Lending Act, the Consumer Financial Protection Act, and the Fair Debt Collection Practices Act to protect you and other borrowers from financial harm.
If a private lender violates one of these consumer rights laws, you may have the right to file a lawsuit against the company in state or federal court.
But before you rush off to court, keep in mind that lawsuits are expensive. The litigation costs could be more than your current loan balance. Those costs are why consumer rights violations are usually handled collectively with a class-action lawsuit. The cases allow the costs to be shared with thousands of student loan borrowers harmed by the same practices.
The recentNavient lawsuit settlement, which wiped out $1.7 billion in private student debt, is a good example. It took over five years and attorney generals from 39 states to reach that deal.
Wait
If you wait long enough, you may be able to get out of paying your private student loan because the time to collect has expired. Each loan you borrowed has a limited period of time built into the contract that the creditor must file a lawsuit against you to recover the debt.
If the creditor or debt collector starts the lawsuit after that legal time limit has passed, the claim may be “barred” because it’s outside thestatute of limitations.
Take a copy of your promissory note to an attorney in your state to find out what the statute of limitations is where you live.
Federal loans don’t have a statute of limitations. To get rid of them, you’ll need to pay off the balance in full or qualify for a loan forgiveness option likePublic Service Loan ForgivenessorTotal and Permanent Disability Discharge. Read more abouthow to get a copy of a student loan promissory note.
Learn More:Do Student Loans Go Away After 20 Years?
