A student loan settlement agreement may be able to help you settle your debt if your student loans are in default. It is possible to use this debt relief option with both advantages and disadvantages. These are the pros and cons of student loan settlements that we’re going to discuss in this article. Before weighing your options, you must first determine whether you have federal or private student loans. Visit mycreditcounselor.net for more detail.
1. If you are in default on your student loan debt, you can settle it
The first thing you need to know about settling your student loan balance is that you need to be in default to take advantage of this option. Your student loan debt cannot be settled for less than what you owe if you’re making your payments on time each month. A student loan can’t be settled if you’re only delinquent in your payments (meaning you haven’t yet defaulted), and your account hasn’t yet defaulted.
A student loan settlement can offer you a number of advantages
Defaulted student loans can save you thousands of dollars for borrowers with student loans in the $30,000 range. Whenever you’re ready to pursue a settlement, you’ll need thousands of dollars to pay off your debt. Your actual savings will depend on how much you owe and whether you have a public or private loan.
2. Multiple debts may be consolidated into one
You can consolidate federal student loans and private student loans if you have more than one. A debt consolidation loan makes it easier for you to manage your debt by consolidating all your loans into one and receiving a new interest rate and a new payment plan. The interest rates, monthly payments, and multiple loans will no longer be a hassle. For this new account, you will only have to make one payment per month. A combination of the interest rates on your consolidated loans will likely be offered to you. A repayment plan based on your income may even be possible if you have a federal student loan.
3. The Interest Rate on Your Loan May Be Lower If You Refinance
Another option for student loan settlement is to refinance your loan(s). It could take longer to pay off your loan when you refinance because you take out a new loan to pay off an old one. If you refinance your student loan (if you are eligible) you will pay a lower interest rate, or at least a fixed rate rather than a variable rate, than you are currently paying. A long-term savings of thousands of dollars might be possible.
4. There are other options for reducing student loan debt
You may qualify for several debt relief options if you have a federal student loan, which are not available to those with private student loans. Besides consolidating and refinancing debt, the government offers income-based payment plans as well. A plan based on income may be suited to you if you qualify. You will be required to review your loan every year and to adjust it as your income changes. You can ask the lender to reevaluate your monthly payment if you lose your job before the review period ends.
The only way to settle your student loan debt is to pay a large lump sum after your account has gone into default. The task of getting student loans is difficult for most borrowers, especially those who are struggling financially. Students are better off consolidating, refinancing, or forbearing their debts under income-based repayment plans.