Negotiating discounted student loan payoff - is it possible and how? Best answer on the web
Payments on this loan have been regular for the last 3-4 years, but were previously erratic. The owner's credit score is in the mid 600s. The owner works full-time in education, barely earning a living wage in this locale.
If any reduction is possible at all, it would almost certainly
not be an amount less than the current principal, and, given
the recent history of regular payments, the chances for any
reduction seem, unfortunately, rather slim.
Let's explore the possibilities.
The following page from FinAid has a detailed list of programs
and links related to Loan Forgiveness options available from
the Federal Government:
http://www.finaid.org/loans/forgiveness.phtml
In particular, for teachers, it is noted:
"Students who become full-time teachers in an elementary or
secondary school that serves students from low-income families
can have a portion of their Perkins Loan forgiven under The
National Defense Education Act. This program forgives 15% of
your loan for the first and second years of teaching service,
20% for the third and fourth, and 30% for the fifth. Contact
your school district's administration to see which schools are
eligible.
Mississippi teachers who currently have their Alternate Route
Teaching License and teach in a shortage area may be eligible
for the Teacher Loan Repayment program. Visit the Mississippi
Office of State Student Financial Aid web site at
www.ihl.state.ms.us or call 1-601-432-6997.
The American Federation of Teachers maintains a list of other
loan forgiveness programs for teachers."
The American Federation of Teachers page lists programs by state:
http://www.aft.org/teachers/jft/loanforgiveness.htm
Their page on the Stafford and Perkins program requirements:
http://www.aft.org/teachers/jft/federalprograms.htm
If the owner doesn't qualify for any of the above, the outlook
is not as good. The following forum thread on Kiplinger.com
about negotiating a discounted payoff for a student loan got
over 400 views but relatively few posts over a period of two
years, with no indication of a hopeful resolution:
http://forums.kiplinger.com/showthread.php?t=2242
One post recommends the use of a debt negotiator. An article
titled, 'Credit Counselor Or Debt Negotiator?' by Broderick
Perkins, cites The non-profit financial education group, San
Diego, CA based Institute of Consumer Financial Education
(ICFE), in exploring the similarities and differences between
Credit Counselors, who promote payment of the debt at lower
interest rates, and Debt Negotiators, who promote debt
reduction, but often at the cost of a worsened credit report
and the possibility that the forgiven debt will be counted
as income by the IRS. More on the page:
http://realtytimes.com/rtcpages/20020717_creditdebt.htm
The ICFE maintains a page of resources here:
http://students.studentdebthelp.org/
One of the resources listed is the FTC's page on Credit
Counseling and Debt Negotiators, which warns you not to
deal with Debt Negotiators who:
- guarantee they can remove your unsecured debt
- promise that unsecured debts can be paid off with pennies
on the dollar
- require substantial monthly service fees
- demand payment of a percentage of savings
- tell you to stop making payments to or communicating with
your creditors
- require you to make monthly payments to them, rather than
with your creditor
- claim that creditors never sue consumers for non-payment
of unsecured debt
- promise that using their system will have no negative impact
on your credit report
- claim that they can remove accurate negative information from
your credit report.
http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.htm
This ezine article on 'Student Loan Debt Negotiation', By Max
Bellamy, suggests that, with all the risks involved in finding
a Debt Negotiator that isn't a ripoff, you might be better off
attempting it yourself, though your inexperience might then
cost you:
http://ezinearticles.com/?Student-Loan-Debt-Negotiation&id=129873
Another ezine article, 'How to Choose a Debt Settlement Company',
by Alan Barnes, suggests checking with the Better Business Bureau
before working with any company, and offers other suggestions:
http://ezinearticles.com/?How-to-Choose-a-Debt-Settlement-Company&id=39977
Alan Barnes is a IAPDA Certified Debt Arbitrator, and President
and CEO of Debt Regret:
http://www.debtregret.com
Their page on Debt Settlement suggests that they may be able
to reduce a debt by 40-60%, and that much of the leverage they
have when negotiating comes from the possibility that their
client, the debtor, may face bankruptcy, in which case the
creditor may receive nothing at all. Much more about their
process of negotiating is on the page:
http://www.debtregret.com/debt_settlement.html
So, while this suggests that you might attempt to negotiate
a reduction yourself, at approximately a 50% reduction, the
tricky part, it seems, is how to convince the creditor that
the debtor is approaching bankruptcy yet will be able to
afford a rapid payoff of the reduced amount of the debt.
How professional Debt Negotiators pull this off is not
clear.
This guide to negotiating debt settlement may give you some
idea about the tactics used by some companies:
http://www.debt-negotiation-services.com/debt-settlement-articles/debt-settlement-negotiate.html
The fact that you are offering to make the payment on the
behalf of another person makes that less of an issue, so
it may be possible to convince them that bankruptcy is a
likelihood without your intervention, in which case they
may be willing to negotiate. Then again, given 3-4 years
of consistent payment, they may see no reason to eliminate
any amount of the debt without the warning signs of a
pending bankruptcy, such as recently missed payments.
Yet another option is to hire an experienced attorney to
negotiate a 'debt workout', but the essential problem is
the same, as noted on DebtWorkout.com:
"...a creditor only does a workout to benefit themselves.
There must be a substantial chance they would end up with
even less if they refuse to work with you."
http://www.debtworkout.com/dwfaq.html
Clearly, then, short of a record of recently-missed payments,
the only way to negotiate a reduction would be to take the
debtor's financial records for the past 6 months to a year
into the negotiation, and be able to show a trend of expense
vs income that threatens to turn into bankruptcy if no
intervention is achieved, and even this might be rejected.
I sincerely hope that satisfies your interests in asking
this question. If anything is unclear, or you have any
questions, please post a Request for Clarification.
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"student loan" site:www.financial-education-icfe.org
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