Why Settling Student Loan Debt Is So Difficult - Law and Daily Life
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Why Settling Student Loan Debt Is So Difficult

Settling student loan debt isn't as easy as a hospital bill or car loan payment that has gone to collections. Nationwide, many graduates are learning that their student loan debts are hard to shake.

Part of the reason, according to Reuters, is that settling student loans may only be possible when students offer large lump-sum payments, averaging "between 30 percent and 80 percent" of the entire loan amount. With the average student loan debt at $27,000, that means debtors need to shell out thousands of dollars in order to avoid collections.

What else can struggling grads do to settle their loan debts?

Settling Student Loans Isn't Cheap

When debtors become overwhelmed by credit card, medical, or auto loan debt, there are a number of debt settlement companies that can negotiate a lump-sum settlement in lieu of your the normal debt payments.

But according to the Federal Trade Commission, there are hidden costs and risks to your credit by using these third party companies. In many cases, a debtor can negotiate a settlement or modified payment plan directly with company that is owed.

In principle, student loans can be settled in the same way. The problem is that graduates in financial trouble are unlikely to have enough assets to satisfy lenders, especially with some still owing $50,000 or more.

And since the federal government can garnish wages, tax refunds, and benefits in order to collect student loan payments, Reuters reports that a debtor is unlikely to settle federal student loans without offering "more money to the federal government than they're already getting."

Can't Settle? Try This...

Although the invasive nature of federal student loans can be an obstacle to settling debt, the government does provide unemployment deferment and income-based repayment plans that private loans do not.

If your student loan payments are more than 20 percent of your monthly income, you may also qualify for a student loan forbearance, which can put your loans on hold for a year. This may give students time to reassess their financial situations, although interest on that loan will still accrue during forbearance.

You may also consider consolidating your student loans to try to obtain a single, lower interest payment -- not to mention removing the confusion of paying Perkins, Stafford, GradPLUS, and private loans separately. But while consolidation may simplify your student loan debts, you will likely lose eligibility for federal deferments and income-based repayment.

To learn more about how to handle your student loans, check out FindLaw's page on Student Loan Repayment Options and download our free Guide to Student Loan Debt.

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