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Let's say I owe a private student loan of $50,000, and it's already been discharged to a 3rd party for collections. Monthly payments would be several hundred dollars, which is something I cannot reasonably afford, nor am I willing to have that much cut out of my paycheck for the next 10 years, considering the amount that I'm making. At this point, I could attempt to resume payment and struggle through with it, but if I were to lose my job, I would once again become unable to pay.

I've been offered by the debt collector figures in the $20-25,000 range to settle, and figures of $2-300 in monthly payments. Should I try to pay (keeping in mind that if I were to lose my job and miss a payment, there would likely be severe ramifications for this agreement), or should I stall, wait for them to take me to court, then settle in person? I won't have this kind of money for a few years, but once I do, I'm more than willing to pay it off.

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With a private loan, they can come after you and do not have to negotiate. You don't have many options besides paying I am afraid. I feel bad for you, as this is a terrible position to be in. Please also be careful they don't start to garnish your paycheck. Take this seriously and respond in writing to everything. – MrChrister♦ Dec 26 '12 at 20:14
You can't afford $2-300 now, but in a few years you expect to be able to pay $20,000? – DJClayworth Dec 27 '12 at 20:13
In a few years I'll likely have a bigger salary and be more able to pay. For now, my main goal is to get my emergency fund built. – Bigbio2002 Dec 27 '12 at 20:43

2 Answers

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You should look into the Income Contingent Repayment and Income Sensitive Repayment plans to see which one you may qualify for.

Another possibility would be to start taking courses part time at another college so that you can qualify for a deferment. I'm not sure that you can qualify for a deferment if you are currently in default.

I've found that negotiating did not work in my case, as the collectors' BATNA would result in them getting more money if they refused to negotiate. I also found that every time the student loans went into default, 30% was added to the balance in fees.

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His loans are private loans, and I do not believe they are subject to the re-payment plans. – MrChrister♦ Dec 26 '12 at 20:12
@MrChrister Are private loans subject to the same "non-dischargeable in bankruptcy" provisions that apply to standard student loans? Are they subject to the same "deferment of beginning of repayments" policy that applies to standard student loans? – Dilip Sarwate Dec 27 '12 at 0:08
@DilipSarwate - I believe they are non-dischargeable. I hear this frequently on the Clark Howard radio program. It is often cited as the second more despicable property of private loans. (The collection practices being the most despicable.) – MrChrister♦ Dec 27 '12 at 0:14
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If not dischargable, why are they willing to settle for 50%? – JoeTaxpayer Dec 27 '12 at 2:10
@JoeTaxpayer - that was my first question, here is a citation. huffingtonpost.com/2012/08/14/…. Looks like "cannot" is wrong, but "probably won't be" is better. – MrChrister♦ Dec 27 '12 at 8:48
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http://www.bills.com/private-student-loan-settlement/

Here is a page that seems to have specific advice on the matter. This site speculates that even though the private loan industry does not have to settle (and the private student loans, like federal loans cannot be discharged with a bankruptcy) they sometimes will anyway.

http://www.huffingtonpost.com/2012/08/14/private-student-loans-bankruptcy-law_n_1753462.html

... If she could file bankruptcy to erase the private student loan debt she owes to Sallie Mae, she would. But because of a 2005 reform law, private student loans cannot be discharged in bankruptcy, except in extremely rare cases. ...

The advice that works for you is the same advice with negotiating any debt. Get it in writing that the amount will constitute payment in full. Be sure that the written agreement makes some mention of how they will report it on your credit. (You are going to take a credit hit if you settle, but time will heal that.)

  1. Do a double check to make sure you don't have a federal loan. Those are more flexible.
  2. Make an offer.
  3. Get it in writing.
  4. Pay by money order or certified check.

The best plan is to pay, but if you can't, and you can honestly prove you can't, the debt collection company would be foolish to not take a settlement. They can wait around forever and sue you, add penalties and fees, but if you cannot pay, you cannot pay.

I am going to guess because you are dealing with a debt collector, they are less vested in collecting the full amount. So get that settlement offer in writing. And don't be too much of a hard core negotiator. The power is all on their side. You will likely have to appeal to the greed of the collection company to succeed. Hope they would rather have $.50 today than $1.25 tomorrow.

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