A student loan settlement agreement may be able to help you clear up your debt if your student loan is in default. This debt relief option has advantages and disadvantages. The pros and cons of student loan settlement will be discussed in this article. Federal student loans are treated differently from Private student loan settlement, so you should first determine what kind of student loan you have before weighing your options.

You Can Settle Your Student Loan Debt Only If You Are In Default

The first thing you need to know about settling your student loan balance is that this process only works if you are currently in default. You will not be able to settle the debt on your student loan for less than you owe if you make your payments every month. You won’t be able to pay off your student loan at this time if you are only delinquent on a few payments and your account is not yet in default status.

Default comes before delinquency. After missing three payments in 90 days (three months), your account is considered delinquent. Your credit report is informed of this delinquency. Your loan usually goes into default about six months after that. If you wish to settle your student debt for less than the amount owed, you must be in the default stage. Call your lender to see if you have any defaulted loans, or call the Federal Student Aid Information Center at 1-800-433-3243. You should contact your school or ECSI if you have a Perkins Loan.

Generally, it takes nine months of missed payments for a federal student loan to default. If you have a federal student loan servicer such as Navient or Great Lakes Educational Loan Services, Inc., you will have 270 days to make up your missed payments before your loan goes into default. A collection agency gets involved when a loan goes into default. A debt collector may be employed by the collection agency to collect the debt. Your student loan balance will be charged with collection charges and collection fees.

Student Loan Settlements Have Many Advantages

The average borrower with a student loan in the $30,000 range can save thousands of dollars by settling a defaulted student loan. Whenever you are ready to negotiate a settlement, you will need a lump sum of money ready to pay off the debt. You will save a different amount depending on whether your student loans were public or private.

In the event that your student loan account is closed with a zero balance, you won’t have to worry about wage garnishments, tax refund garnishments, or court hearings related to your student loan. If you pay off your college debt, you will also have less to worry about in retirement. Benefits from Social Security can be garnished to collect on a defaulted public loan, and the debt does not fall under traditional statutes of limitations for debts like credit card debt and other types of unsecured debt.