Why Debt Negotiation May Not Help You With Student Loan Debts

Few things in life are more exciting than graduating from college. You get to toss your cap in the air, walk across a stage, get cheered, and someone hands you a diploma. You’ve survived four years of all-nighters, tough courses, and boring instructors. It’s a time that definitely calls for a celebration.

But then, three months later, things don’t seem so rosy. You’ll need to start paying back those student loans, and that can be a real burden. If you’re typical, you graduated owing $20,000, $30,000 or more. You’ll have 10 years to pay back the money and that means 10 long years of big monthly payments.

When debt negotiation can help

If you have private student loans or loans from a bank or an online lender, you may be able to negotiate them. But it won’t be easy. Your lender’s number one objective is to collect every dollar you owe. The first thing it may do is offer you a sort of timeout where you would not be required to make your payments for a period of time. Or, it may agree to temporarily reduce your payments. Unfortunately, all these things do is just sort of drop kicks your problem into the future.

If you want to settle the debt, you’ll have to make an airtight case. This means you’ll need to prove you’ve shrunk your budget as much as possible, and have eliminated all discretionary spending. You may have to provide the lender with your bank and credit card statements to verify your situation.

It will be a tough sell, but if you stick to your guns you may be able to negotiate a good settlement.

When debt negotiation can’t help

Federal student loans can’t be settled. It’s that simple. They can’t even be discharged in bankruptcy. Several ways exist to get them discharged or forgiven but never settled.

The good news is that options are available that could make repaying that money much less painful. When you graduated, you were automatically put on the standard or 10-year payment plan. This means your monthly payment will be 1/120th of your total debt, plus interest. But you don’t have to stay on that plan. Several other programs tie your payments directly to your discretionary income.


The two most liberal of the federal payback programs are PAYE and RRPAYE.

PAYE or Pay As You Earn is for Direct Subsidized and Subsidized Loans, and Direct Plus Loans. It caps your maximum monthly payments at 10% of your discretionary income. Your payments would be recalculated each year based on your updated family size and Income. However, to be eligible for this program, you must be a new borrower on or after October 1, 2007. Plus, you must have received a disbursement from a Direct Loan on or after October 1, 2011.

REPAYE or Revised Pay As You Earn offers the same benefits as PAYE, with the payments capped at 10% of your discretionary income. The difference between it and PAYE is that anyone who got a direct loan is eligible for this plan.

Both of these programs would mean lower monthly payments at least initially. Before you sign up for either of them, think seriously about your future income. If you’ve chosen a career such as teaching or social work where your income will remain relatively stable, then one of these programs could make good sense. But if you’ve chosen one where you believe your income will increase substantially over the years, you might be better off choosing another option.

A third option

There is a third option that’s been gaining in popularity – a debt consolidation loan. It can be used to pay off both private loans and federal student loans. One of these loans could make sense if you have high-interest loans. The interest rate on this type of loans is at an almost all-time low. Getting one with a lower interest rate would mean lower monthly payments. You could also negotiate the term so you’d have the loan paid off either faster or slower – depending on your financial circumstances.

In summary

Don’t get discouraged about your student loan payments. As you have read, options exist that could make it much easier to repay the money. Get more information about the ones discussed here. It’s certain you’ll be able to find one that will make repaying those loans a lot easier and much less painful.