Have the years gone on and on with you faithfully paying on that student loan?   Do you know find yourself with a family and no job or, perhaps, living with an upside down mortgage payment (you owe more than your house is worth)? Perhaps you have a small amount of money that you can use towards a loan, and you simply want to pay a lower amount.

No matter the situation you find yourself in, there are several choices you may have (and notice I said “may”) when it comes to your student loan, and trying to get it back on track or paid off in full.

Have you considered trying to get a settlement?

A settlement, unlike a payoff or deferment, is an official adjustment to your loan balance whereby the company holding the loan agrees to “settle” your account for a lower amount.

Now, before you go running off with glee, this isn’t as cut and draw as you think. More than likely, you have one of these two loan types:

Federally Insured  Loans

If a federal agency – such as Sallie Mae – holds your student loan, it’s considered “federally insured” and, unfortunately, settlement is not an option.   Why?  This is because of the changes to the Federal Bankruptcy Code.  Just like taxes and/or money you owe the IRS is not dischargeable under bankruptcy, neither are student loans.   With that said, while you won’t be able to settle for a lower balance amount, you can negotiate to make lower payments and extend the life of the loan.

There are a few instances in which your student loan can be “settled”:

• In the event of your death.
• If you become totally and permanently disabled after the loan is disbursed.
• If you have accrued 10 years as a public service worker and made 10 years of loan payments.  This is possible under a program called, “Public Service Loan Forgiveness.” To read more, visit http://www.ibrinfo.org/what.vp.html#pslf.

As an aside, there is an urban myth that says a student loan debt transfers to your next of kin if you die. Not true.  The only time someone else can be held accountable for your debt is if he/she signed/co-signed the loan agreement. Granted, if you have a large estate when you die with assets, the executor will probably pay off the loan from the estate.   If this might apply to you, contact a financial advisor.)

Private Company Loans

This is a traditional loan, similar to what you get when you put a house, car, etc. These are loans held by the bank or finance company, and you do have an option to try to settle them for a lesser amount.

Here are the factors taken into account:

• Ability to Pay. Most companies are not going to agree to settle unless you can prove you can make the settlement payments.   (Why would then cut your balanced owed when you have no means to pay anything.)  Thus, if you’ve been making your payments on time, and this is a new situation, show them that you have acted in “good faith” and need help at this time.
  
• Adjustments Only. Don’t be afraid to ask for late fees and other discretionary charges be waived. If removal of these fees/charges will bring your loan to a point where you can have lower payments, the company might agree to ‘settle’ for this lower amount – again assuming you can pay.   (Read the fine print on these types of agreements. It may include a clause that says if you miss one payment, they add back the fees/charges, the interest rate climbs, etc.).
  
• Fixed Term Payback. If you do manage to get a settlement (and this can be from 20-70% depending on who the loan is with), you will probably be asked to make several large payments over “X” amount of time.   Again, don’t be surprised by this and read the details on what happens if you miss a payment.

Settlement is only a viable option for those borrowers who can show a good history of loan repayment and/or have the ability to pay now (whether as lump sum or larger fixed payments).