Best Student Loan Debt Settlement Companies
April 2024
A debt settlement may be an option worth considering if you're struggling to repay your student loans and you're already behind in your payments. Although it has significant drawabacks, it can be better than filing for bankruptcy or simply not paying your debt. To help you get the best possible outcome, here are our picks for the best student loan debt settlement companies.
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Student loans are a necessary evil for many pursuing higher education. With the average student owing $24,000 per year for college ($96,000 for four years), more than 50% of families are left with no choice but to borrow. And while loans may be taken out with the best intentions, life doesn't always go according to plan after graduation.
Maybe you didn't get the salary you had planned on or graduated during a recession. Whatever the case may be, it turns out, about one in five students fall behind on their payments, according to the Federal Reserve.
If you can't afford to repay your student loans, you may be able to settle your federal or private student loans for less than you owe. However, negotiating student loans is not easy. In many cases it pays off to hire experts, such as a debt settlement firm or a student tax debt attorney. To help improve your odds, here's a look at the best debt settlement companies for student loans.
Methodology
SuperMoney's list of the top-rated debt settlement companies for student loans is based on the qualitative recommendations of our community members and the quantitative recommendations of our ranking algorithms. We've compared dozens of debt settlement companies for student loans to find those that offer the best overall value. We look for reputable firms with many years of experience that provide competitive fees and have certified professional on staff.
Common Questions About Student Loan Debt Settlement
Can you settle student loan debt?
It is possible to settle student loan debt. However, as is the case with settling most debts, lenders generally won't be willing to accept a settlement unless a debt is in "default" status. Federal student loans usually go into default status after about nine months of nonpayment while private loans may go into default after 90 to 180 days of nonpayment.
The reason you need to be in default to settle a student loan is that lenders prefer borrowers to pay the entire debt amount (no surprises here). But once a loan is in default, a lender risks getting nothing, so a settlement may become their best option.
What types of student loans can you settle?
Both federal and private student loans can potentially be settled. However, private student loans are more likely to be settled because private lenders don't have as many options when it comes to collecting debt.
Private lenders must take you to court and win to force collections through methods like wage garnishment. There are also statutes in each state that limit the time a lender has to take you to court over a debt. Once the statute of limitations has run out, they can't force you to pay.
The federal government, on the other hand, doesn't need to take you to court to garnish your wages. Further, they can take your tax refunds, go after federal benefits, and garnish your social security. So while you can technically settle federal student loans, the US government is less likely to accept a settlement offer as it may be able to collect more via other avenues.
Does settling student debt hurt your credit?
Yes, settling a debt will hurt your credit score if the lender reports it to a credit bureau. When you don't make your payments in full and on time, it will show up as a negative item on your report and will damage your score. If the account goes into default, the negative impact will be greater.
Future lenders, landlords, etc. prefer to see applicants fulfill their credit obligations. However, if you are going to default on a student loan no matter what, settling the debt may be a better option than getting a judgment against or just letting it go to collections and ignoring it. So while settling debts for less than the full amount is terrible for your credit, it can be less harmful than other options.
What happens if your student loans go to collections?
When a student loan goes into collections, a company buys your debt from your lender and puts all its effort into collecting on it. The result can be an increase in calls and letters, which can become very annoying.
The collections agency may offer you a payment plan, a settlement, or may sue you for the balance. If you are sued, the court can grant a lender the right to garnish your wages.
Additionally, if you have federal loans, you will lose access to deferment, forbearance, and various repayment plans.
Can you settle federal student loans?
It is possible to settle federal loans, but the process to do so is difficult, and the likelihood of success is less than with private student loans. The federal government has many ways of collecting what you owe, which often makes a settlement less appealing. Enlisting the help of a student debt lawyer or a debt settlement company could improve your chances.
What percentage of my student debt should I offer to settle?
The Federal government doesn't publish any guidelines on student loan settlements as they don't want to encourage them. However, guidelines for the government's collection agencies have mentioned allowing settlements up to 30% in the past.
Private lenders will have varying guidelines for settlements, which will likely be more lenient. A good rule of thumb, especially when dealing with federal loan settlements, is to analyze how much you can reasonably afford to pay. From the lender's standpoint, it needs to be more than they stand to get from wage garnishment or other forced collections.
What are the pros and cons of hiring a debt settlement company for your student loans?
How do you settle student debt with Nelnet and Navient?
While Nelnet and Navient have reputations for being difficult when it comes to student loan debt settlements, every case is different. Like any settlement, the direr your situation appears, the more likely a creditor is to negotiate. It can be helpful to hire a professional debt settlement company that is experienced with student loan debt to negotiate on your behalf.
How much do student debt settlement firms charge?
Debt settlement companies for student debt vary in their pricing. They may charge you a percentage of the debt settled or a percentage of your total debt amount. The percentage often ranges from 15% to 25%. Additionally, some firms may charge you a monthly consultancy fee.
What are the best debt settlement companies for student debt?
The best debt settlement companies for student debt are those that charge competitive rates and have a good track record of successful settlements with student loan lenders. Review and compare the companies above, and read the reviews from past clients, to find the best fit for your situation.
About the Author
SuperMoney
SuperMoney is the most comprehensive financial services comparison site around. We have published hundreds of personal finance articles and provide detailed reviews on thousands of financial products and services. Our unbiased advice and free comparison tools help consumers make smart financial decisions based on hard data, not marketing gimmicks.
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