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Negotiating Your Student Loan Rate

Sep 13, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

If you’re seeking to negotiate a reduction on most types of loans, the threat of bankruptcy is the place to start. With student loans, you lose that bargaining position—as you can’t discharge a student loan in bankruptcy. However, you can negotiate a lower monthly rate on your student loans in many cases.

If you have federal student loans from a traditional or accredited online college, the government makes it so you don’t actually have to negotiate—by making certain programs available designed to help cash-strapped college graduates bring their monthly payments down to a manageable level. For instance, the Pay-As-You-Earn plan and Income-Based Repayment will both let you reduce your monthly payments, if you qualify, based on your existing income.

The government will also let you stop paying your loans entirely through deferment or forbearance. Deferment is designed for people with slightly more financial need than forbearance, and your interest will continue to accumulate—but you can get temporary relief for your student loan debt this way.

Finally, you can get your federal student loans forgiven in a variety of ways. Mostly, this is done by going into a career path the government seeks to encourage—particularly in public service. Check out more information on the government’s public service loan forgiveness program here.

It’s the private student loans you’ll really need to negotiate. You can’t discharge these loans in bankruptcy either, but private lenders don’t offer the range of programs the government does to give you long-term relief if you’re having trouble making your payments. In addition, private student loans have much higher interest rates and often variable interest—meaning that they’re much more difficult to manage than your average federal student loan.

If you’re planning to attempt this, first get all your loan documentation together. Go over it to make sure there are no mistakes in your records or payment amounts, and that interest has been calculated correctly. You’d be surprised how often these minor “errors” occur—often for the bank’s benefit, not the student’s.

Then contact the bank—or the collections agency, if your account has been moved to collections—to ask to negotiate your loan payments. Explain why you can’t meet your current payment obligations, and ask for the company to reduce the amount of your interest rates, forgive some interest, or eliminate your past-due and collections fees.

After this, ask your lender about setting up a new payment agreement. You probably won’t be able to negotiate a payment that’s less than the original principal amount, but you may be able to establish a monthly payment plan that will eliminate a certain pre-set amount within a year.

It also may be worth it to offer to make a lump-sum payment, or settlement. If you can pay a large amount off at once, your lender may be willing to reduce the amount owed by a certain amount of interest—although, once again, it’s unlikely they’ll reduce the total principal.

If you do  manage to negotiate an agreement with your lender, be sure to get everything set in writing. Whatever you do, don’t send any money to the lender before you have a written and signed letter going over the agreement. If you’ve negotiated a settlement, make sure the letter specifies that once this payment is made, you do not owe any more money—as some lenders will let borrowers think they are negotiating settlements, only to apply the large payments toward the loan without eliminating any extra amount.

Negotiating new terms on your student loans isn’t easy—but it’s doable, in some cases. Do your research and be persistent—and you’re more likely to be able to negotiate a monthly payment amount you can live with.



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