Hi Andrew. Here’s my story. I have 2 private student loans from KeyBank for approximately 60K. I defaulted 5 years ago (April 2011) and have not made a payment since. I received a settlement offer from law firm in August 2014 for approximately $36K but I was unable to come up with a lump sum at that time so I ignored the offer. I am now in a position to make a settlement offer and have about $30K to work with.
I’ve lived in Nevada for 10 years and statute of limitations for promissory note is 6 years. Prior to Nevada I lived in AZ and South Dakota which is where I lived when loans were issued. I’m not 100% sure but I believe both AZ and SD SOL’s are also 6 years. Thus, it looks like 6 years is the magic number.
I’m at 5 years since default and deathly afraid KeyBank or Collection Agency is going to sue me. The clock is ticking. Ugh!
(1) Should I wait until I’m presented with a settlement offer since the statute of limitations is getting close? Or do you recommend I make the first move?
(2) Do I initiate contact with KeyBank or collection agency? I have my credit report and it’s very confusing so I’m not sure which loans are in collections and which ones are not.
There are really two different approaches you can take with Key bank about your student loans at this point. Contact them now to negotiate a settlement, or wait and see what happens as the clock winds down on statute of limitations (SOL), and credit reporting limits.
You mentioned a law firm sent you a settlement offer in Aug 2014. It’s probably a good idea to check a copy of your most recent credit report to make sure they did not obtain a judgment against you. Sometimes this happens without borrowers even knowing about it when a summons is sent to an old address, which happened to one of my clients. If it was a law firm in the same state as you, they may also still have the account, since that’s typically the last stop in the collection cycle for private lenders like Key Bank.
WARNING: By contacting them, it may draw attention to an account that they could have otherwise forgotten about. However, if they don’t have your current contact info and they haven’t already tried to summon you to court, they may be preparing to do that before the SOL expires.
Settlement strategies for student loans with Key Bank.
If you contact them you’ll want to do so with a settlement strategy in mind. Sometimes with old collection accounts, borrowers decide to “let sleeping dogs lie” and wait to see if they will try anything. The downside of this is that it’s not a proactive solution and you may be put into a situation where you are on the defensive and have to hire an attorney to defend a lawsuit, if they do try to go that route. However, if they do not do that, you have a very good chance of getting it past the SOL and then Key Bank off of your credit report. However, there are many different actions that can reactivate SOL so you may want to talk with a consumer defense attorney in your state about that – just because 6 years passes since you defaulted doesn’t mean that something didn’t happen during that time (like a partial payment) that could restart the clock.
On the other hand, you could take a proactive approach and contact them to initiate a settlement offer (starting with a lower offer than what you intend to settle for). In many cases, borrowers benefit from hiring a professional negotiator with years of experience in settling private student loans. There are a lot of horror stories out there about borrowers who settled, only to find out that the remaining balance is still being collected on or that a collection agency refused to honor a settlement. With the right documentation, those problems can be mitigated post-settlement. A good negotiator can usually negotiate a better offer than someone trying it themselves for the first time – as well as make sense of multiple listings on your credit report. Regardless of whether you do it yourself or you hire a professional, you’ll want to get the offer in writing. It’s a good idea to reach out to Keybank first, and if they prefer that you talk with a collection agency about the account then they will let you know that.
Don’t give up too much information and stick to your hardship story during negotiations – definitely don’t discuss any assets or even your income. This gives the other side leverage. With the account this far past due, a settlement significantly less than 50% of the balance may be possible. KeyBank is not the most aggressive private student loan lender from what I’ve seen, but the fact that it was with a collection law firm in 2014 is reason enough to go back over your credit report and make sure they did not obtain a default judgment by summoning you to court at an old address (it’s not supposed to happen, but it does).
The benefits of settling this account now could also be a boost to your credit score, by curing the charge-off and improving your debt to income and debt to credit ratios. One of my clients experienced a very large jump in his credit score after settling a private student loan that was about as far behind as yours is. How much your credit score will increase depends on the other factors influencing your score, but you will most likely see some increase after settlement with Key Bank.
Doing nothing about your loan.
By paying the charge-off through settlement, you will also remove one of the most common obstacles to obtaining a mortgage or car loan. If neither of those things are on the horizon and you don’t have funds to settle, then perhaps the best bet is to wait and see if the other side takes action before time runs out. You’d want to be ready to hire a consumer defense attorney if they spring a surprise lawsuit on you though. Once the account goes past SOL, they can still try to take you to court – it’s up to you to defend yourself or hire an attorney who can make the case that the loans are past SOL. Being past the 6 year mark doesn’t automatically mean the lender won’t try to take you to court, so it would be up to you to raise the SOL defense (or your attorney).
As mentioned earlier, there are also different actions that can restart the SOL clock, so before you commit to that strategy it would be best to seek legal advice. If you decide to take the settlement route, you don’t need an attorney to do that for you. You can do it yourself or hire a professional who can help you negotiate the lowest settlement – and then make sure it’s executed properly.
You definitely have some options here, and which route you take really depends on your goals and plans for the next several years; as well as the amount of funds you have to put toward a potential settlement. If you’re looking for a negotiator with private student loan experience, I’ve helped many borrowers in similar situations as yours and have some examples of my student loan settlements posted on my website.
Anyone with questions or concerns dealing with Key Bank and your private student loans is welcome to post in the comments below for feedback. You can reach Andrew for a one on one consult at 800-939-8357, option 4 rings to him.