Dealing with student loans can be a frightening process. Not only is student loan debt exploding but there is a significant amount of concern that many students were misled and lied to by schools willing to sell butts into seats with nearly almost any misrepresentation. This concern has been especially true at many for-profit schools funded by both federal and private loans.
For federal student loans the Department of Education has offered programs to help make payments more affordable. A look at those programs can be found here. But even those programs are not wonderful despite the often reduced monthly payments. Those income based repayment programs can be a financially hazardous trap if you just jump in. More about that here.
Private student loan lenders and holders have be particularly problematic. They passed out loans like candy and built balances that will never be repaid by the majority of people who never graduated and those who received some diploma. Yes, most people with student loan debt never graduate from school.
When people call their private student loan servicer they are told there are few, if any payment options to make the loans more affordable. The general reaction is “too bad” or they offer people who already can’t afford their loans, a payment holiday which only inflates the balance due to make the future payments less affordable.
People have felt helpless when it comes to their private student loan lenders. But all lenders are not the same. Take Navient for example, while the general line by Navient will be there isn’t much they can or will do to make the private loans more affordable, the reality is they do settle private student loans for much less than owed if you know who to talk to. If you have a Navient private student loan you should read This is How You Can Settle Your Navient Student Loan.
So on the front end, consumers with private loans are being told there is nothing that can be done to help with the massive loans that were passed out. But the secret is, that’s just not true. Previously I wrote the article These Private Student Loans Can Be Easily Discharged in Bankruptcy. It shows exactly how and why some private student loans can be swept away in short order.
But This Private Loan Secret Has Been Well Kept
While the people on the front lines at private student loan lenders are told there are no options available and they pass that information on to the debtors, it’s not true.
A look at a number of cases through the federal courts has shown private student loan lenders are settling balances for 20% to 80% off the amount due. That’s a huge help for someone buried in debt.
These reductions have not been easy to get and getting to them has been very expensive for consumers, because they often require an attorney to get involved.
What private student loan lenders don’t want people to know is if the loan winds up in court, they will settle. The three ways a loan winds up in court is either the consumers sues the private student loan lender, the consumer files an adversary proceeding (AP) in bankruptcy, or the consumer is sued by the lender.
Getting a private student loan lender to sue you is a strategy for some people. Read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan. But that only works if someone is going to fight back. Most people when sued just stick their heads in the ground and lose by default. It’s a tragic outcome to a wasted opportunity to reduce the loan balance through negotiations with the attorney or lender.
But all of the private student loan cases I looked at for this article, in a bankruptcy AP or when the consumer sued the lender for some reason, would up being dismissed. And the attorneys who represented the consumer have said their were able to secure settlements and reductions rather than letting a court decide the case and set a precedent. That’s why they were dismissed.
The bigger settlements are reserved for people who have a good advocate fighting for them and a great supporting story to backup the claim why they can’t pay.
Are These Secret Private Student Loan Settlements Unfair?
The private student loan industry is full of moral quicksand on both sides. While lenders gave out money without much concern for the ability to repay, students and parents also willingly signed on the line for the loans. And let’s not forget the schools, public and private, who marketed education without any disclosure about graduation rates and success of the students. It’s a mess from start to finish.
Student loan lenders are not required to offer any reduction on balances and loan payments. But that’s the loan people voluntarily took out and agreed to be responsible for.
In a fair world, maybe private student loan holders should be required to make loans more affordable to repay. But fair or not, the reality today is if you can get a smart attorney involved who is licensed in your state to represent you and will sue the lender or file a bankruptcy adversary proceeding, that consumer has a pretty good chance of having their private student loan balances reduced with a reasonable hardship story.
Outside of that, you’d have to hire a talented and smart advisor to hold your hand and walk you through the process. That kind of advisor is not manning the phones at the typical student loan assistance company. Those call center folks are usually just trying to sell people an inexpensive federal student loan income based repayment plans. The one person I know is someone I’ve mentored for years. His name is Damon Day and he’s a debt coach. You can find him online.
Is it unfair that someone has to pay an attorney or advisor for their smarts and experience in dealing with the private student loan debt? It’s just the way it works in most, if not all, parts of life. Paying an attorney money to deal with the student loans is a hardship for most people drowning in debt. But not doing anything results in a much worse situation.
So if you feel you have been struggling with private student loan debt and feeling hopeless, the truth is there is some hope and secret deals being struck. You’ve just got to fight for your entrance into those deals. It’s just the way it is.
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