Getting It Gone. Paying Off Student Loan?
February 25, 2014 5:46 PM   Subscribe

I have somewhere around $60,000.00 of student loan debt. Its all one loan consolidated with the US government but managed by a private company called Ed Financial. I would like to try negotiating a pay off for less than what is due. Details and further questions inside.

Before I met my husband I was really poor and I had a lot of student loan debt. I paid everything I could over the years, and used income contingent plans and graduated payment plans, to keep the loan in good standing and keep my credit intact, but I never made enough to get on top of the loan and stop it from just getting bigger and bigger.

Then I met and married my husband. Suddenly, my student loan monthly payments skyrocketed because he makes a decent salary and we filed our taxes jointly. We no longer qualify for payment plans and the monthly payment amount is a killer.

My husband is about to get a sum of money (less than total amount I owe, unfortunately) that we would like to try to use to negotiate a pay off if possible.

Does anyone have any advice for the best way to try to do this? Would it be a good idea to go through a credit counselor or a financial adviser or something? Should I just contact the company that is managing it and ask outright? Is there any hope at all that they might negotiate with me? Right now my husband makes a good income, but I still don't make that much. Horrible as it is to think about, there exists the possibility that my husband could leave me, and then the lender would be right back to trying to get blood from a stone (i.e. me). Maybe this would be enough incentive that they might negotiate for a lump sum now? Or is that just wishful thinking on my part?

Any help is so vastly appreciated. I have had this debt all of my adult life. Summer of next year will be 25 years that I have had my loans.

And PS for those of you who are considering taking out student loans, PLEASE think very carefully before you sign. I was 18 when I signed for mine and I had NO IDEA what I was about to do to myself. My student loans have negatively affected every aspect of my adult life. Its the one and only thing I ever regret doing.
posted by anonymous to Work & Money (13 answers total) 11 users marked this as a favorite
Or is that just wishful thinking on my part?

The loan servicer actually isn't interested in you paying off your loan in full in the near term, or in any possible future woe-is-me scenarios that might reduce your monthly payments to them. That is how they make their money -- on extended payment plans with interest and penalties accruing. The situation as you've described it presents the loan servicer with ZERO incentive to work with you -- your husband's salary (on top of yours) makes you guys a reliable cash-cow.

I think you are best served sitting down with a financial planner and crunching some numbers to see how best to utilize your husband's windfall, as part of a total overview of your shared finances.

If your loans were government issued (not private) there is some new legislation kicking in this summer that might impact your payments.
posted by nacho fries at 6:01 PM on February 25, 2014 [2 favorites]

So, in general, there is not really such a thing as negotiating away a debt that you are current on. You have to be in pretty serious default before the creditor (or collections agency) will consider it. It seems to set up a perverse incentive, but otherwise lenders would not stay in business. They need to be pretty well convinced that you cannot pay the full amount, and that requires a lot more than the possibility of your getting divorced some time in the future.

Now, that's the general rule. Student loans are almost impossible to negotiate because they are not dischargeable in bankruptcy, so the lender's pretty sure of eventually getting paid no matter what happens.

I'm sorry. Student loans really do suck. Your best course if you truly cannot afford the payments may be to put the windfall your husband is expecting towards principal reduction and asking EdFinancial to recast the loan to a lower payment with the same maturity date. Or this may happen automatically if you can pay off the consolidated loans in groups (my loans, also with EdF, were Group A, Group B, etc., and paying off a group eliminated that portion of the monthly payment).
posted by payoto at 6:03 PM on February 25, 2014 [7 favorites]

You should contact a financial professional with experience handling student loans, but this is my understanding (as someone who will probably die before his loans are fully discharged, and feels obligated to research every option):

1. It is possible to obtain a settlement offer.

2. You must be in default to settle a loan.

3. Generally the settlement amount will be somewhere between the account balance when you enter default and the current balance at the time when the settlement offer is made. That is, you aren't going to be successfully settle for less than you owe now. If you default in the future, however, you may be able to settle for less than the maximum that the balance rises to after default.

4. The servicer expects a certain "recovery rate" on defaulted student loans. Recovery rates--actual recovery rates--are around 110% and 120% of the balance when you enter default (remember that the balance continues to increase after the loan enters default), but your s could vary depending on the details of your case. So, if you default now, you could probably settle at some future date for between $66,000 and $72,000.

5. If you ever settle, check the loan's history carefully for errors in favor of the lender.
posted by pullayup at 6:07 PM on February 25, 2014 [1 favorite]

Are you sure you're not eligible for a different plan? My husband and I both make a decent salary and file taxes jointly; I called my student loan servicer and asked to be placed on an extended repayment plan. Yes, I pay more in the long run, but my payments are smaller, and I have the luxury of being able to toss extra payments or larger payments on as my salary grows. Perhaps give that a shot?
posted by Verdandi at 6:07 PM on February 25, 2014

If these are all federal loans and you work in a qualifying profession, you may qualify for Public Service Loan Forgiveness, which means after 120 consecutive on time payments (meaning payments are on time when not in deferment or forbearance and each consecutive payment outside of those is on time) what you paid is acceptable as full on the loan.

Only payments made Oct 1, 2007 and later count toward this.

I just found out that I qualify for this. I have 7 more years before I am done with the 120 pauments, but at the end of it, somewhere around 7k will be forgiven.

If you work for any kind of not for profit (501c), you may qualify.

posted by zizzle at 6:40 PM on February 25, 2014 [5 favorites]

I will add, for loan forgiveness, you can't pay ahead. It's individual monthly payments only.
posted by zizzle at 6:42 PM on February 25, 2014

Have you considered filing your taxes separately? My wife and I do that so she can continue on the Income Based Repayment plan. It sucks--we miss out on a lot of deductions--but it definitely works out to be much less expensive than filing together, taking those deductions, and altering her payments.
posted by The Michael The at 7:22 PM on February 25, 2014 [3 favorites]

What would stop you from applying the windfall to the principal amount, thus lowering either your payment, your payoff term, or both? Even if the lender won't discharge in a settlement, that's no reason not to use the capital to reduce your debt, if you have no other major debt and a good emergency fund and savings strategy. Lower the principal, lower the burden.
posted by spitbull at 7:54 PM on February 25, 2014 [1 favorite]

I have about the same amount of student loans as you, so I commiserate with the feeling that you're just never going to be free of it. But as far as I have heard there is no such thing as negotiating down a student loan payment. If you have a windfall of cash that you can afford to let go, I would shoot all of it over to your student loan to pay off a big chunk of the balance. At the least that will reduce your overall burden.

You should also ask about other payment plans, if you want to reduce the amount you pay per month. At $60k of debt per year I pay the minimum amount which equals about $400 a month, which I don't find too burdensome -- but yeah, my loan won't be paid off for 30 years total.
posted by joan_holloway at 8:02 PM on February 25, 2014

I can sort of understand what you're getting at, in that you'd basically be telling them, "I could give you half (or whatever) of what I owe today, as a hedge against me being completely broke in the future," but what you've shown over the years is that in good times and in bad, you'll continue trying to pay off what you owe, like you said you would.

It does seem kind of perverse that they'd be more likely to negotiate with you if you defaulted, but of course, if you defaulted, you'd ruin your credit. Keeping good credit -- which I think you're very wise to do -- is essentially the act of making it clear that when you borrow money, you will pay it back on the terms to which you agreed. Which is what you're doing now.

Believe me, I know it's a bear; I will be paying off loans until roughly 2030 for a degree I haven't used since 2007. It stinks. But unfortunately, "I just got much more financially secure" is probably not a persuasive argument for them to decide you don't have to pay back all of what you borrowed. Like I said: I know. I hear you. It's a tough, tough thing to be saddled with.
posted by Linda_Holmes at 6:28 AM on February 26, 2014 [1 favorite]

Summer of next year will be 25 years that I have had my loans.

If you were making payments for all those years via an Income Based Repayment arrangement, in some situations, loans are forgiven after 25 years of IBR payments. My understanding is that once you are in IBR, even if your income goes up, you still stay in that program -- so, you should still have been in IBR even with your husband's salary factored in, and you should still qualify for the 25-year exit option (if your loans are of the qualifying type(s)).

You've probably already looked into this, but here's a bit of info in case this might be an option for you.
posted by nacho fries at 10:21 AM on February 26, 2014 [1 favorite]

What @The Michael The said.

If you file Married Filing Separately, only your income counts in the calculation for Income Based Repayment. If there is a large gap in income between you and your husband, this can DRASTICALLY lower your payments.

A few problems with Married Filing Separately (that I know of):
* No student loan interest deduction. This deduction (NOT a credit) is limited to $2,500 per year anyway, so it may not matter all that much compared to your savings.
* Both spouses must either itemize or both take the standard deduction. This can make filing tricky, especially if you have a large mortgage interest deduction.

Let's say you make $40,000 per year and your husband makes $100,000. No kids. You owe $60,000 at 6% on a 15 year repayment plan. On a standard repayment plan, you'll pay the full student loan amount of $506 per month.

If you file separately, your payment would be no higher than $216 per month. (See table here.) Your household size is 2, even though you file separately, and in this scenario, you make $40K. Obviously, if your individual income is lower, your payments are lower.

So, you'd save $300 per month. After 25 years of payments, the loan balance is forgiven but the forgiven amount is taxed as income. Also note that your minimum payment needs to at least cover the interest on the loan, as the government will only cover interest for you for three years.
posted by cnc at 10:57 AM on February 26, 2014 [1 favorite]

Just wanted to check back in to say that Income Contingent Repayment (which has higher payments than Income Based Reapyment) has a loan forgiveness provision as well. If you've been paying on Income Contingent Repayment for years, you might be closer to forgiveness than you think.

On IBR, I know they don't kick you out of the program if you no longer qualify. That may be the same for ICR (don't know), but it's worth looking into.
posted by cnc at 11:04 AM on February 26, 2014 [1 favorite]

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