What Can I Do if I’m Delinquent on My Federal and Private Student Loans?

Q: What are my debt relief options if I am delinquent on both my federal student loans and my private student loans?

A: Falling behind on your student loan payments is a problem far too common. I speak with people on a frequent basis facing delinquency in payment of their student loans. One of the problems I hear most often is that finding employment after graduation is difficult. If you have federal student loans, you get the benefit of many options, including deferments, forbearances and income-based repayment plans. However, your private student loans don’t get the same benefit.

Repayment of private student loans begins immediately upon graduation. These student loans are just like any other unsecured debt. That includes the high interest rates these debts tend to have. Falling behind on you payments can prove to be crippling to your future. I have heard many stories of people in this situation. The mounting debt due to accruing interest is startling.

I recently spoke with an individual that took out federal and private student loans to go to college and graduate school. Her private student loans totaled $100,000. This is on top of her federal student loans from her undergraduate education. After graduating, she couldn’t find a job and immediately defaulted in her payments on all of her loans. For the federal student loans, she cured her default by getting into an income-based repayment plan. Due to the high interest rates and accruing late penalties, three years later, she is now looking at a $300,000 balance on her private student loans. She has little hope that she will ever be able to pay off this debt. So what does she do?

Bankrupting student loans is an uphill battle. You have to show an undue hardship that prevents you from paying this debt. Unfortunately, lack of income usually won’t meet this tough requirement. This leaves with you the option of trying to enter into a repayment plan you can afford or potentially negotiating a settlement for a discounted payoff. In my private student loan settlement law practice, I have learned that lenders tend to treat private student loan debt like any other unsecured debt (like credit card debt). This is a good thing because it usually means that the lenders will consider settling for less than due if it means they will get paid back something, even if at a discount and over time. Otherwise, the lender would be forced to sue and get a judgment to collect. Depending on which state you live in, collecting on a judgment can be difficult for a creditor. They would prefer to have you in some type of repayment plan rather than the uncertainties of collecting on a judgment years down the road.

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I have highlighted some recent success stories on negotiating private student loan debt here on my website. I encourage you to take a look at those results and consider whether settling your private student loans is a good option for you. Obviously, results will vary from client to client. However, you owe it to yourself to at least give it your consideration. The debt will not just magically disappear over time. The balances will just go up.

One final thought. Be suspect of the fees you are being quoted if you speak with law firms about negotiating your debt. Ask the attorney if they will consider a discount on their usual fee if your balances have tripled. It shouldn’t cost you tens of thousands of dollars to represent you to negotiate your private student loans. Most involved in the debt settlement industry charge a fee equal to a percentage of the debt owed. Attorneys with a conscience will consider reducing their fees if the numbers get out of hand due to increasing balances on high interest loans.

Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, [email protected] or visit gamezlawfirm.com.

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Steve Rhode
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