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How Does Student Loans Debt Settlement Work?

What is Debt Settlement?

Debt settlement or debt negotiation is type of service which is intended to help relief from unsecured loans debt or credit card debt by reducing the total amount of unsecured debt. Usually, outstanding debt can be reduced 40-60% of the original balance. Debt settlement is an alternative to bankruptcy.  When you find out that you are unable to meet your financial obligations and you are persistently falling behind your monthly payments, it is time to try to negotiate a debt settlement. In a debt settlement negotiation agreement, lenders agree to accept a payment that is less than total balance of the debt but it’s considered payment in total. The total amount includes all the fees and interest. The debt than will be erased. This can be done via one lump sum payment or interest-free monthly payments. You can contact creditors yourself or you can hire professional negotiators to do a debt settlement work on your behalf. To decide if the debt settlement is the best option for you, you should consider your budget and obligations and deliberate your ability to access money before you decide what monthly payments you can afford to make.

Student Loan Debt Negotiation

Student loan debt settlement is a balance negotiation on your defaulted student loan debt. If your student loan is in default it means that you have missed to make your loan payments for period of time; default usually comes after 270 days of failure to repay your federal student loans. Settlement agreement will become formal after the US Department of Education and the collection agencies accept it.

How to Pay?

To negotiate your defaulted student loan debts settlement, you must be able to make a lump sum payment to bay back most of the loan balance. The Department of Education will entail you to bay back the full sum of the settlement amount within a fiscal year. Such a compromise settlement offer will typically require you to pay the settlement amount in total within 90 days of the date the settlement offer was made. Rarely, the Department of Education allows borrower to pay back the part of the settlement amount through monthly payments, but these payments will generally be paid within one fiscal year.

The Debt Settlement Amount

Department of Education will probably accept a reduced payment for the complete satisfaction of your outstanding student loan balance. The intention of the settlement is to offer students that have defaulted loans a solution to satisfy their outstanding student loan balance.  If you are not able to satisfy the loan balance completely, the collection agency or the Department of Education should be willing to offer this student loan settlement. It is unlikely that the Department of Education is going to offer student loan debts settlement that is less than the current recovery rate. The recovery rate is the percentage of disbursements on defaulted student loans that are recovered and includes interest and penalties in addition to the payments to the principal balance.

Types of Settlement

In some cases, the US Department of Education allows private collection agencies to make student loan debt settlements without previous Department’s approval. To get allowed your debt settlement you must agree to one of the three typical types of settlement:

  • The first settlement type satisfies only the principal and accrued owing interest.
  • Second settlement type satisfies the principal amount plus 50% of the accrued but unpaid interest.
  • The third type of settlement satisfies 90% of the current principal and interest balance.

If you offer less than these usual compromises, the collection agency will need to get approval for debt settlement from the Department of Education.

Debt Settlement Pros and Cons

The positive side of student loan debt settlement may include some of the following:

  • You will pay back amount that is the same as the original student loan amount you have borrowed;
  • You’ll be free of the stress that accompanies this uncomfortable financial situation;
  • You will be able to receive additional Federal financial aid for students;
  • Administrative wage garnishment will end and your tax return and other benefits wouldn’t longer be seized.

However, student loan debt settlement has some downsides and here are some of them:

  • You should go for the debt settlement only if you already have a poor credit history. If not, your credit score will be damaged for a period of time;
  • Another negative aspect of student loan debt settlement is that while you are paying the settlement company, most of them won’t inform you how much exactly of your monthly payments is going to your debts and how much is actually being deduced as their fee.

Ensure that you get all the terms of student loan debt agreement in writing and make sure that you understand what you are signing and what the company is willing to do to settle your loan debt.

How to Qualify for Student Loan Debt Settlement?

  • Debt negotiation is available on FFEL loans, Direct student loans, Federal Perkins loans and Pell grants of any balance.
  • You must satisfy the payment within the approved time frame, which is 90 days from settlement approval 9 (in exceptional cases this time frame can be extended).
  • Student loan debt settlements should be paid by a certified method of payment such as money orders, credit cards or cashier’s check.
  • Make sure to write a good debt settlement letter – this will help you negotiate your debts.

Debt Consolidation Student Loans

If you have a several student loan debts you may opt to consolidate your debts which means that you can take out a loan to repay other debts. This allows you to consolidate the money you owe into only one payment.

Debt Settlement in Canada

In Canada, it is possibly to negotiate lump sum settlements on unsecured consumer debt such as credit cards, personal loans, lines of credit, and utilities (telephone bills, cable, Internet, and cell phone).

Debt settlement might be right option for you if you meet the following conditions:

  • If you are solvent;
  • If you have income or the other way to access to money;
  • If you have more than $10,000 in unsecured debt.

In case you are insolvent, which means that you cannot pay your bills when they are due, only available options are a consumer proposal and personal bankruptcy. However, if you have provincial student loan debt you might be able to negotiate a settlement on it. You can negotiate with the original student loan lender such as Canada Student Loans to pay a cash lump sum that is identical to a large portion of your defaulted loan balance.

Provincial governments in Canada have their own programs to help borrowers make their provincial student loans repayment more convenient, such as revision of repayment terms, interest relief, debt reduction in repayment and the Repayment Assistance Program (RAP) offered by Canadian government.

Other available options you should consider if you have difficulty paying back your student loans are different flexible student loan repayment options and a student loan forgiveness program offered by the federal government planned to help a selected group of college graduates to pay back their student loans.

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Consolidate Private Student Loans – What You Should Know

Refinance private college loans

While some students are fortunate enough to have parents pay for their educations or receive full-tuition scholarships, student loans are a reality for most college students today. Between the rising cost of tuition, room, board, endless fees, books and transportation expenses, most students must take out some student loans in order to afford a college education. While it is easy to sign on the line and receive thousands of dollars, it is much harder to leave school and be able to immediately pay off these loans.

Most student loan payment become due six months after the student has graduated or sooner if the student drops out of school early. Many graduate students do not have a professional salary at this point in time and even if they do, may still struggle to make student loan payments. Consolidating students loans can help borrowers receive reduced payments and more flexibility with loan payments.

Some student loans are backed by the federal government, including Stafford Loans, Perkins Loans and PLUS Loans. These loans can be consolidated into Direct Loans that provide the greatest amount of flexibility. Consolidating federal loans allow borrowers to receive a reduced interest rate and the convenience of one monthly payment. Among the various types of repayment terms for federal loans are income contingent repayment plans and an income-based repayment plan. Extended plans allow the borrower to pay smaller payments over an extended period of the loan. Borrowers can change to different repayment plans as their needs change.

Private consolidation loans are also available. To consolidate private student loans is a great way to simplify your finances and lower your monthly payments for more friendly payment terms. These types of loans are based on the borrower’s credit score and current financial position. Getting all of a borrower’s loans rolled into one larger loan can provide multiple benefits to borrowers. This strategy decreases the number of bills that arrive each month and the likelihood of missing payments or making late payments. Consolidating the loan often entails a resetting of the loan’s term which can decrease the amount of the monthly payment. Borrowers can also save a substantial amount of money by receiving a reduction of an interest rate by one or more percentage points.

When a borrower is looking for consolidation options, it is important for him to thoroughly research the options that are available to him. Various options will be available based on the types of loans that the borrower has. When applying for a private consolidation, it is important for the borrower to improve his credit score as much as possible prior to applying for the loan. If the borrower can increase his credit score by 50 or more points, he will likely be able to receive a consolidation loan with preferable terms. Borrowers can also apply for a home equity loan in order to consolidate their loans. Home equity loans tend to have lower interest rates and fixed interest rates. Many private student loans have a variable rate. Even if the two interest rates are comparable, it is in the borrower’s best interest to apply for a fixed rate interest rate so that the borrower can lock in the lower rate for a longer period of time. Another option for borrowers is to contact the financial institution that currently holds their loans and request that the lender provide them with a consolidation loan with a lower interest rate before they reach out to a new lender.

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Applying for Student Loans Consolidation What You Should Know

Student loans consolidation is type of loan which allows borrower to replace several student loans like Perkins Loans, PLUS Loans or Stafford Loans or some private loans with just one. Under this plan, students can borrow enough money in one loan to repay other student loans. In case of federal student loans, the Federal Direct Student Loan Program lets you to consolidate most federal loans. For the private student loans, you can apply for a loan and use it to repay several private loans, so as to consolidate the sum and combine multiple repayments into one.

Benefits and Drawbacks of Student Loan Consolidation

There are some advantages of getting student consolidation loan, such as follows:

  • Student Debt Consolidation loan may have a lower interest rate than the rates on credit cards, so the loan should reduce student’s interest charges and help him/her eliminate credit card debt, finally.
  • You may have the opportunity to repay your student loans over extended period of time, which is advantageous because decreases your monthly payments.
  • If you take a private student loan, compared to federal loans, it is possible to negotiate more favorable interest rates with bank or other lender.
  • By joining your federal student loans with a for example, bank or other lender, you owe money to the bank instead to the government, which can be beneficial since if you fail to repay your federal loan, government can take hold on tax refunds; the bank cannot do this.
  • In case you have a negative credit rating report due to your previous student loans, a consolidation loan can let you repair your bad credit history.

On the other hand, there are some downsides of getting student loans consolidation as well.

  • Loan repayment extension, often from ten to thirty years means that at the end you will pay back the much higher total amount of the loan than the particular loans were themselves.
  • You may be eligible for interest release on condition that your student loan is guaranteed by the U.S. government. After student loans consolidation the bank will not give you interest relief.
  • In case you have bad credit or job history the interest rate charged on your student loan by the bank may be higher than interest charged under the federal student loans.
  • Consolidation loans are not available to all students; you must meet certain eligibility criteria to qualify for the student loans consolidation.

Eligibility Requirements

To qualify for the private Student Loans Consolidation Plan, you must meet some conditions:

  • You must be working or have some other source of monthly income allowing you to pay off the loan. Bank will estimate your ability to manage your debt based on your income.
  • The bank will also require the copy of your monthly budget statement to decide if you can handle your loan repayments.
  • To satisfy requisites set up by the bank or other lending institution you are dealing with, you may need a co-signor or collateral (such as a house or a car).

How to Apply for the Student Consolidation Loan and Repayment Options

The application process is very simple. You just need to fill the online application (also available in paper form) and Promissory Note and submit it to apply for a Direct Student Consolidation Loan. The application also includes your Borrower’s Rights and Responsibilities. In addition, you will have to complete Repayment Plan form in order to select your repayment plan. You can choose from several repayment option and some of them are: Income-Based Repayment which depends on your income, which means that the repayment amount is going to rise as your income does; Income-contingent and Income-sensitive plans for individuals with fluctuated income.

For self-employed individuals who have their income fluctuated, income-contingent or income-sensitive repayment plan can be most advantageous solution. According to this plans, as the borrower’s income rises and falls, the amount of their loan also does. In fact, income-contingent and income-sensitive plans are very similar to previous IBR and can be considered as it variations.

Before You Apply

There are some important issues to take into account when you are thinking of taking the student loans consolidation plan. Firstly, always do a little research on the loan characteristics, available repayment options, interest rates and other term and conditions. Do not sign any contract before you are sure that you completely understand all the matter you are getting involved with. Read as much articles about student loans and available borrowing options to figure it out which one is the most appropriate for you. To determine if you are eligible for a Student Loan Consolidation plan, contact department of Education, your bank or lending company to obtain all the necessary information.

In the long run, a consolidation loan typically pays more interest over time due to the extended loan term, so be aware of this before you apply for your student loans consolidation.

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