Many students are forced to obtain loans to pay for further education; but, repayment can sometimes present a problem which can force the person to eventually seek a way of negotiating student loan debt.
Negotiating Student Loan Debt With Government Loans
There are many ways to pay for your education. Government guaranteed student loans, private bank loans and grants are but a few of the alternatives. The amount of these loans may add together and reach a point where repayment exceeds the earning potential of a new job. When money starts to get tight and loan payments are becoming a burden, you may need to seek to renegotiate your student loans.
As of 2010, the most common student debt comes from taking government guaranteed student loans. The interest rates on these loans are usually much lower than the going rate available at a commercial bank. Government loans usually require that repayment begins within six months of completing school. The interest rate is most often determined at the time the loan is obtained. The repayment period of the loan is typically ten years, although this can vary depending on how much you borrow. Your monthly loan payment is generally calculated based on the sum of the principle and the interest for each payment period.
Negotiating debt with government loans to reduce the principal is difficult, and perhaps even impossible, since, as of 2010, these loans are protected from bankruptcy in all but the most dire situations. However, you can change some of the specifics associated with most government loans by loan consolidation.
Consolidation of Government Loans
In most cases, the Department of Education allows a repaying student to consolidate student loan debt if he has more than one loan. Consolidation can reduce the required monthly payment amount, drop the interest rate of some loans in certain circumstances and stretch the loan period for up to 30 years. By consolidating, you may be able to have a better chance at repayment, especially if your lender is unwilling to negotiate.
If the loan has defaulted at some point in the past, your lender may require you to participate in a rehabilitation process before consolidating or when the loan is consolidated. Often times the payments may rise during this program, which can last as long as 12 months, but then the loans can usually be consolidated into a single loan with a lower interest rate. Due to the lower interest rate and conversion to a single loan, the payment on the loans will usually drop. This reduction in required payments can provide needed relief to a tight monthly budget.
Negotiating Private Student Loans
Taking out standard bank loans is another way that students finance their education. These loans are often more taxing on a budget as interest rates may be higher, there may be a shorter grace period before repayment begins, and the repayment terms may be less flexible than with government loans. As time goes on, you may find yourself in a position where you can't make the loan payment. When you discover the difficulty in your budget, review and recap your income and expenses in writing. These calculations will generally be required to talk with your lender regarding a possible negotiation of debt.
Immediately contact your lender and explain the situation. Ask the lender if it is possible to work with you on loan repayment. Be prepared to negotiate with the lender and stick with it. By contacting the lender as soon as you discover the shortfall in your budget, you show that you are willing to repay the loan but need help in making the payments. Let them know that you can repay the loan if the terms of the loan are modified.
The items that you want to negotiate over include interest rate, length of the loan term and amount of the loan. Asking for the principle amount to be reduced is not uncommon nor is it always refused. The bank may be willing to accept a single lump sum payment for the remaining balance, even if the payment is for less than the full amount due. By accepting a single payment, the bank will receive all or most of the initial loan amount without having the loan default or taking a very long time to recover the loan amount through low monthly payments.
If you feel uncomfortable negotiating student loan debt with a lender, there are companies that specialize in doing this. The cost is high to contract them to handle the negotiation process. Most require that you put 60 percent of their fee up front before starting to work on the case.
The Possibility of Negotiating
Negotiating student loan debt is definitely more difficult than negotiating credit card debt. The reason is that as of 2010 some student loan debt cannot be discharged in bankruptcy court except in cases of extreme and permanent hardship. Still, some lenders, especially private lenders, may be willing to work with you. If you are struggling to pay your bills, it may be worth the effort to explore debt negotiation.