Dear Steve,
I have a student loan with Navient (formerly Sallie Mae). A relative of mine has come into some money and has offered to pay on the load (in full), however, they have urged me to try and negotiate a settlement deal.
Having spoken to my friends at Navient, I was informed by three separate people there, that one cannot negotiate on Federal Loans. Is this true? I have read about cases where the debtor was able to negotiate a pay-off which was less than the principle amount of the loan.
Can you please advise me of any options that I may have available to me to try to decrease the amount of the loan in order to settle. Alternatively, despite what's being bandied about by the scare-mongering corporate-owned media, is there a statute of limitations on student loans, and can they be discharged in bankruptcy. (I'm from VA, incidentally). Do you know of any new legislation that may change the way in which student debt is dealt with in the future (ie freezing of interest rates, or just clearing the path of old loans, etc.)?
Thank you for your time, and I look forward to your response.
Kind regards,
Darren
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Dear Darren,
Great Questions. Thank you for asking.
There is a clear answer here, but with a disclaimer.
I have never seen Navient or anyone settle a federal student loan that is current. The reason is because there isn't really any reason for the government to do that. They can garnish Social Security, intercept tax refunds, have the Department of Justice sue you, administratively garnish your wages, and there is no statute of limitation on those loans.
You see, there just isn't much of a reason for them to settle for less.
That all being said, I have seen federal student loans settle for less than the amount due in a very limited cases.
I looked at federal student loans where people had been sued by the Department of Justice. Getting sued turned out to be a favorable outcome for people looking for a break and participating in the case.
Of the random cases I reviewed, those people that did not stick their head in the sand and used the suit as an opportunity to settle or get better repayment terms, did. Read my review of this cases, here.
I also previously looked at federal student loans that had been included in bankruptcy cases. These were typically people that had really good stories about why repaying their student loans was a real burden. In general the people were typically lower income and had some sort of mitigating medical condition or situation.
In those 2012 cases reviewed that had good data to judge, 47% received a full discharge, 12% settled for less than the balance, and 21% wound up with a better repayment plan. You can see this story for all of the details.
These results are somewhat similar to what Iuliano found in this previous study.
According to that study of 2007 data, 38% received some sort of reduction or elimination of their student loan debt.
Regarding the statute of limitations, the surprising answer is that student loans outside the statute of limitations can be discharged if they are private student loans. If you just have not paid on a private student loan and the statute of limitations has expired, then it is eliminated like any other loan in a consumer bankruptcy filing.
Until Congress acts with some meaningful help for private student loan holders, it is becoming a viable option for private student loan holders in a jam to just stop paying their private student loans. While it will land those folks in collections and a risk of being sued, private student loan servicers, like Navient, are settling those loans. It seems the majority of private student loan holders in default are not being sued. Waiting out the statute of limitations can be emotionally tough, but a reality.
It really doesn't matter what legislation might be on the table. Every year there is this or that new proposal and none of it matters unless it gets passed. With a strong Republican Congress in our future, the chances of that happening are slim. Keep in mind it was a strong Republican Congress that changed the law to prevent the discharge of private student loans in bankruptcy.
Federal loans have some great repayment and forgiveness options now. We don't need to wait around for those. Want to know what they are, click here.
Before I go I wanted to leave you with three easy action items you jump on right now to address your situation. Just click here.
If you have a credit or debt question you'd like to ask, just click here and ask away.
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