There may be relief (talk to us about your specific circumstances) but settlement is likely not an option for most. The Department of Education has very strict limits on settlement of federal student loans:
- 100% of current principal and interest (better credit reporting)
- 100% of principal and 50% interest
- 90% of principal and interest
They will typically waive collection costs, but a lump sum amount is due within 90 days of a written offer. This is all for Direct loans held by the Department of Education.
If you have an older Federal Family Education Loan (“FFEL”), you are likely looking at a 30% discount of the balance owed now.
We have settled federal student loans that have went to judgment already. There is a 20 plus page financial package that would need to be sent in before consideration. Then the terms would be based upon that package and negotiation. We’ve seen much better terms but it may take more time due to the Department back checking some of the information provided on the financial statement through subpoenas to the financial entities directly.
Bottom line – don’t default. Since there is no statute of limitations on a federal student loan (much like murder), and limited negotiation of a settlement, there is no advantage of a default. They also add 25% to the balance when you default as collection costs, and then it will cost to consolidate or rehab back out of the default.
Instead, consider your other options: SAVE forbearance for a few more months most likely, IBR, consolidate Parent Plus loans for ultimate IBR, bankruptcy to discharge other debt, perhaps student loan debt as well, and pay a smaller student loan payment, disability discharge (look at vocationally, not whether you can feed or dress yourself), etc. We can help. Please reach out.
Bay News 9 just interviewed me, and a client or two for a story out tonight at 10:00 p.m. EST on this topic of collections restarting today. I’ll post it when available.