Borrowers with existing student loans have signed a contract, and there is little incentive for the lender to cut the borrower a break. Those who are shopping for student loans likewise have little room for negotiating. A computer formula determines rates and terms as lenders lack the time and the desire to haggle with potential borrowers on an individual basis.

While most student loan companies might like consumers to conclude that there is zero chance for negotiating, the reality is that there are spots where a prepared borrower can get lenders to back down. The key is understanding when borrowers have leverage and how to use that leverage.

Negotiations Before a Student Loan Contract is Signed

Potential borrowers are a category of consumers that might be able to sway a lender into changing the terms of a student loan agreement.

From the consumer’s perspective, if the student loan company isn’t willing to offer the desired terms, the borrower will just go elsewhere.

Sadly, borrowers cannot just send an email to lenders listing the terms that they want. Lenders are not willing to haggle back and forth to reach a deal.

A borrower’s leverage comes from having an offer with another company. This leverage exists for those looking for private loans for school, and it exists for people looking to refinance their existing student loans.

The only time a lender will “match” what another company is doing is when the consumer has a contract from another company ready to be signed. This contract is available after the borrower has gone through the initial approval process and completed underwriting.

This strategy works best for people who are shopping for student loan interest rates but have a preferred company. If the favorite company offers a rate that is slightly worse than another lender, they may match the better deal when shown the final terms.

Cutting a Deal on an Existing Contract

Because lenders draft the student loan contracts, and they know the law is on their side in bankruptcy proceedings, there is very little room for negotiation.

We have seen this play out with borrowers who wish to settle their remaining student loan debt with a lump sum payment. Borrowers may think that it is fair to settle a $20,000 student loan balance for $18,000. However, the lender will typically insist on full payment.

Those who are in a strong financial position will have much better odds of getting better loan terms via student loan refinancing. Refinancing is usually much more straightforward than negotiating a new deal, and it is the path that will generally lead to the best deal possible.

The borrowers who are struggling are the ones who have some leverage and a chance at negotiating improved loan terms. If the lender thinks that there is a chance that the borrower will default, they may be willing to accommodate the borrower by temporarily reducing interest rates or adjusting the loan term. An example of this process working out would be the Navient Rate Reduction Program.

Those who are unable to afford their monthly payments should try the following process…

The Steps for Negotiating New Terms

The ideal point of contact and the exact process will vary from lender to lender. These steps should be viewed more as a rough guide than an iron-clad set of rules:

1. Speak with someone with authority to help – This step sounds obvious, but it can be surprisingly hard. Many of the customer service representatives don’t have permission to change interest rates on existing loans. If someone isn’t allowed to provide the remedy you seek, politely ask to speak to someone who can. It will save everyone some time.
2. Explain your situation quickly, but have the details ready – Saying I cannot afford my monthly payment isn’t enough. Explain that you take home X dollars each month, Y dollars are left for things like food, rent, and utilities, and you can only pay Z dollars per month. Have your expenses in front of you before making the call and think about what you can realistically afford to pay.
3. Don’t settle for a forbearance or a deferment – Most lenders will quickly offer this “remedy,” but in reality, a deferment or forbearance might make things worse. Explain that a temporary break in payments won’t fix things. You don’t see your finances changing in six months, and by delaying payments, your balance will only grow, and the situation will become worse. The goal is to come up with a plan that leads to the loan being repaid.
4. Be reasonable with your request – The lender won’t forgive your debt because you asked nicely. Reasonable requests would be a reduction in the interest rate or extending the amount of time that you have to repay the loan.
5. Be kind on the phone – People working in phone support get yelled at by frustrated customers all day. Being a jerk will not increase your odds of getting help. You have signed a contract, so the only break you will get is if the lender chooses to give you one.
6. Keep calling if the first couple calls don’t succeed – Student loan information is notoriously inconsistent from one representative to the next. One person telling you that nothing can be done is hardly definitive. There is an element in luck to being successful in these requests, and more calls increase the odds of a favorable outcome.

If you are successful in your request, keep detailed notes on the new terms. Ideally, get it in writing from the student loan lender. Though uncommon, you may need to prove what you were told.

Also, if you are able to talk to someone who is especially helpful, politely ask for a method to communicate with them directly. A direct line of contact with a helpful student loan representative is incredibly valuable.

Finally, if all else fails, consider filing a complaint with the Consumer Financial Protection Bureau.

Getting a Lawyer Involved

While lawyers do have plenty of training and experience in negotiations, we don’t have any special powers to make lenders yield to our will with just a single phone call.

Student loans present an especially difficult situation because of the bankruptcy rules for student debt. To boil a lot of law into a single sentence: it is much harder to get bankruptcy protections on student loans than it is for most other debt, such as credit cards, auto loans, or mortgages. Where empty threats might work in other forms of consumer debt, student loans tend to be more tricky.

That being said, those that are considering bankruptcy should discuss their student loans with their attorney. A bankruptcy attorney may be able to get the student loan company to agree to modified loan terms.

Final Thought: Think Like a Lender

Lenders are in business to maximize profits. As a result, getting a break on loan terms is usually pretty difficult.

That being said, there are times where it is in the best interest of the student loan company to cut the customer a break. As borrowers, we need to identify those circumstances and use them as leverage when possible.

The post Tips for Negotiating with Student Loan Lenders appeared first on The Student Loan Sherpa.

Savvy borrowers are always looking for opportunities to save money on student loan payments. One common reader question looks something like this:

I owe $15,000 on my student loan. If I’m able to pay my lender a lump sum of $10,000 now, is there a way to get them to accept the loan as being paid in full?

It’s true that debt settlements, when debts are settled for less than what’s owed, do happen. However, this practice is more common for medical debt than it is for student loans. Probably the biggest reason for this is that bankruptcy is much more difficult to obtain for student loans. Lenders know that borrowers have little choice but to pay back the debt in full.

That being said, there are limited circumstances in which a lump sum payoff can work.

A Student Loan Partial Payoff Example

Suppose you have $30,000 in student debt to be paid off over the next 25 years. If you suddenly had an extra $22,000, you may wonder if your student loan lender would be willing to take the cash up front and call it even. In some ways, the transaction makes sense for both parties. You pay way more than the amount that is currently due, but you save money over the life of the loan. The lender receives a significant payment much earlier than they expected.

Win-win, right?

Let’s Make a Deal Doesn’t Work

The idea of settling your student debt with a lump sum payment seems practical from a borrower’s perspective. This approach runs counter to how lenders generally operate, though. The exact amount of money a lender currently receives from the borrower is not the lender’s biggest concern. Instead, lenders are primarily focused on the long-term return they can generate from a loan.

Collecting principal is how lenders recoup the money they lent you. Collecting interest is how lenders make money. A lender accepting a large partial payment rather than the full balance just doesn’t make good business sense from their perspective. Furthermore, because they make money on interest and fees, not collecting any more interest or fees isn’t a win for them, either. It is the reason that your lender wants you to pay the minimum over the life of the loan rather than paying it off quickly. This is why negotiating a lower interest rate is usually easier than arranging for a loan payoff.

If you approach your lender with a proposal to settle, you are unlikely to succeed in significantly reducing the debt outright. The most feasible action is often just to pay off the existing balance in full. While this may not feel like a victory, paying off your loan early is still beneficial for you as it prevents additional interest from accruing, potentially saving you money in the long run.

But wait… I’ve heard of people settling their debt for less than they owed.

The stories you have heard are true. From time to time, people do settle their student loan debt with a lump sum for a fraction of what they owe. A key detail that is often omitted from these stories, however, is that the borrower in question is usually delinquent on their loans and deep in default when these settlements occur. The negotiation normally takes place between the borrower or their attorney and a collection agency rather than the original lender.

In such scenarios, lenders may be more open to negotiation because they face a real risk of not recovering any money at all. Faced with the choice of receiving a definite amount now or potentially nothing later, they often choose the immediate payment.

For borrowers who are up to date on their loan payments, the situation is different. Lenders see these borrowers as low-risk, expecting to recover the full amount over time. Therefore, they have little incentive to settle for less.

Beating the System: Using a lump sum payoff to eliminate a student loan

There is definitely the temptation to try to get clever. The idea of deliberately delaying student loan payments to save up a large settlement amount can seem appealing at first glance. This strategy involves letting the loan go into default, then offering a lump sum when the lender becomes eager to settle as they approach potential legal action.

However, this approach is fraught with substantial risks and can end up being much more costly than it appears.

One of the immediate consequences of not making loan payments is the damage to your credit score. While a credit score may be just a number, it can have a significant impact on your financial plans. For example, it can mean the difference between owning a house versus renting. It also dictates the interest rate of any loans that you may acquire. A good credit score has real financial value. Throwing it away for the chance to save a few bucks is a bad idea.

Another critical issue is the accumulation of debt. When you stop making payments, interest on your student loans continues to accrue, increasing the total amount you owe. Late fees add up with each missed payment, further inflating your debt. By the time you propose a settlement, the total debt could be significantly higher than the original amount due to these added costs.

Thus, while it might be tempting to try to manipulate the system by saving up for a lump-sum settlement, the potential long-term costs, including a ruined credit score and a much larger debt burden, make this strategy highly risky. It’s generally safer and more financially prudent to maintain regular loan payments and explore other repayment or forgiveness options that don’t jeopardize your financial health.

I have a huge chunk of change, but not enough to pay off the loan… so what do I do?

While it might be tempting to look for a loophole or quick fix to eliminate your student loan debt with a large sum of money, such strategies rarely exist.

If you have a substantial amount of money available and are considering using it to reduce your student loan debt, send in the big check. This won’t clear your debt entirely, but it will significantly reduce the principal amount owed. Lowering the principal means you’ll accrue less interest daily, which can save you a substantial amount in the long run. A partial payoff may not be the perfect solution, but it’s far more beneficial than sticking to what your lender wants each month.

However, before making that huge payment, be sure to consider other financial goals like retirement, an emergency fund, and buying a house.

Ultimately, even though most borrowers will not be able to get their debt wiped away with a partial payment, they can still make a huge dent in the interest that is working against them on a daily basis. It isn’t the ultimate goal, but it is a big step forward.

The post Fact or Fiction: Can I payoff my student loans with a lump sum? appeared first on The Student Loan Sherpa.

They write the contracts. They know bankruptcy is a long shot for any borrower. They have an army of call center representatives trained to collect payments. That same call center army is given little authority to make any meaningful changes to loan terms that might help borrowers.

To be blunt, borrowers looking to just call up Sallie Mae, Navient, or any other lender in order to get lower interest rates are likely in for a disappointment.

That all being said, interest rate negotiation can be done. The key is understanding the leverage available and knowing how to utilize it. Whether a borrower is struggling to keep up, or having success in repayment, lower interest rates can be achieved.

Negotiating Lower Interest Rates for Struggling Borrowers

Sometimes circumstances make it impossible to keep up with student loan payments.

An illness or a period of unemployment can cause student debt balances to grow out of control.

Borrowers asking for help are most commonly offered a deferment or a forbearance. For many borrowers, this is a mistake as a deferment merely delays payment and allows the balance to grow.

While the deferment/forbearance route may help some people facing a temporary hardship, longer-term difficulties will require a different option. Fortunately, some private lenders have shown a willingness to lower interest rates for six months to a year to help borrowers regain control of their debt. The best-known program of this nature is the Navient Rate Reduction Program. Not all Navient employees are aware of the program or able to enroll borrowers, but by asking to be transferred to someone with Rate Reduction Program authority, borrowers can potentially get signed up.

When lenders like Sallie Mae and Navient offer a program of this nature, it is not a term of the original borrower contract. This means that borrowers cannot demand a rate reduction. Instead, they have to persuade the lender to approve it. Borrowers will usually need to share income information as well as monthly debts.

The key to negotiating an interest rate reduction under these hardship plans is to show the following:

• A desire or willingness to repay the loan
• Financial circumstances that make it impossible without some help

Because enrollment is something of a judgment call for the lender, it is critical to be kind and patient with the call center employee helping out. Working in customer service means a stressful environment, low pay, and usually poor training. Borrowers who are understanding will be far more likely to get help. Additionally, because these call center employees have different levels of training, and because some are more helpful than others, it may be useful to call multiple times to make the request.

Negotiating a Better Rate by Threat of Refinancing

Many borrowers think that by calling a lender and threatening to take their business elsewhere, they will be able to get a lower interest rate.

The idea behind this approach is that the lender will want to keep the customer who hasn’t missed any payments and offer a better interest rate to keep them happy.

Unfortunately, this particular tactic usually will not work. Lenders know that if someone can get a lower rate elsewhere, they will just go elsewhere. As a result, the threat of refinancing is a hollow threat unlikely to make a difference.

However, making the threat less hollow can make a difference…

Using Other Lenders to Negotiate a Lower Interest Rate 

The threat of refinancing means little. Having an approval in hand can make a big difference.

Documenting a refinance opportunity takes a little bit of work, but because there are now 20 different lenders offering refinancing services, competition has forced these companies to make the process quick and easy.

The downside to this approach is that it does require a soft credit pull and at least 15 minutes. This strategy will also only work for borrowers who have a solid income and credit score.

The approach is pretty simple:

1. Apply to student loan refinance companies like SoFi, CommonBond, and LendKey,
2. Upload existing loan information to the refinance lender,
3. Go through the process up to the point of the new lender sending out a final contract, and
4. Take the final offer to the current lender and ask them to beat it.

Some lenders will be more receptive to this approach than others, but the key is to have that final contract, often called a rate disclosure. That document will prove that the “other” offer is real.

This approach will also work when shopping refinance rates. Because each lender has a different formula for evaluating applications, the company advertising the lowest rates may not be the company offering the lowest rates. However, these lenders will compete to win customers, so one refinance lender may adjust their rate offer to match or beat another lender. The key to this process is to shop around and then use the offers to get lenders bidding against each other.

Some companies are more receptive to matching the competition than others. When a lender refuses to beat the competition, borrowers can just choose the lender that offered a better rate.

Negotiating Interest Rates on Federal Loans

Federal loans are a different animal when it comes to negotiating lower rates.

Interest rates on federal loans are set by Congress. This means that federal loan servicers will not lower interest rates, regardless of the strategy used by the borrower.

Borrowers do have the option of income-driven repayment plans and student loan forgiveness, but despite these excellent federal protections, the rate will remain the same.

The only way to get a lower interest rate on this debt is to refinance the federal loans with a private lender. This move can be dangerous because it means that all of the federal protections will be gone forever. As a result, a private refinance of federal debt is only recommended for borrowers who are in a strong financial situation.

Making a Deal on a Loan Payoff

Rather than trying to get a better interest rate, some borrowers would rather try to negotiate a loan payoff, where they pay a large portion of the existing debt in return for the remaining balance being wiped away. As an example, a borrower might want to pay $15,000 upfront if it means a $20,000 loan would be eliminated.

The only time these sort of loan payoffs happen is if a borrower has fallen significantly behind on their debt and is severely delinquent or in default. In some circumstances, a lender may offer to resolve the debt in return for a large payment.

Borrowers who are current on their loans are highly unlikely to be able to get a loan payoff for less than the full amount owed. This is because the lender is making money on interest each month and has no incentive to offer a break. They know most borrowers have little choice but to repay the loan in full.

Looking Beyond Negotiation

Negotiation is one tool that can potentially get borrowers a better interest rate on their student loans, but it isn’t the only one.

By our count, there are at least 14 different ways to get lower interest rates on student loans. Expert dealmaking may be one way of getting better rates, but borrowers would be wise to explore all potential avenues of savings.

The post How to Negotiate a Lower Interest Rate with a Student Loan Lender appeared first on The Student Loan Sherpa.

The way the scam currently works is people receive a non-specific email from a Gmail account about settling their debt. The email offers to settle the debt in full for a Green Dot Money Pak voucher. Long after the funds have been transferred, do the unsuspecting borrowers realize that they have been the victim of fraud.

Borrowers need to be aware that scammers are sending out offers to settle student loan debt for a fraction of the actual balance. The reality is that settlement offers are very rare and normally only offered to severely delinquent borrowers.

Generally speaking, student loan scams work because borrowers desperately want the offer they receive to be true. This fake settlement scam is no different.

What gives this particular scam away?

Though student loan debt settlement is a real thing, especially in the case of defaulted or severely delinquent loans, lenders are not likely to contact you via email. As anyone who has fallen behind on their student loans knows, the preferred method of contact is the phone.

If lenders did wish to contact you via email, it would not be using a Gmail account. Instead, it would be an account that ended @salliemae.com or @wellsfargo.com. If the email is coming from a Ymail, Hotmail, or Gmail account; you can be certain it isn’t a real email from your lender.

The best way to flush out this scam is to log on to the lender’s website. Don’t make the mistake of following a link in the email. Instead, run a quick google search for the lender’s website. Call the number listed on the lender’s website to verify the contents of any questionable emails.

What to do if you receive a “settlement offer”?

If you are contacted by someone representing themselves to be your lender, do not give them any information about your account or loans. Instead, find out exactly what they want and why they are calling.

If they are calling about a private student loan, go to that lender’s website and give them a call. Explain what just happened and find out what is going on. If they are calling about a federal government loan, go to the federal government loan database, to look up the loan in question. The loan database will have contact information for the appropriate loan servicer. Once again, give them a call to find out if the offer you received is real or not.

How common is this type of fraud?

Given the growing number of student loan delinquencies and defaults, scams like this will probably continue to pop up. People are desperate to get rid of their student loan debt, and if you talk to a bunch of random people, it won’t be long until you come across someone who is behind on their student loans.

How do I avoid student loan fraud?

We have seen several different types of student loan fraud. Generally speaking, common sense is the best medicine. If anything ever seems too good to be true, it probably is.

If you are paying off your student loans, every penny is precious. If you ever find yourself in a situation that seems off, it is a good idea to take a step back and give it some thought. Discuss it with people you trust. Don’t let your student loan dilemma push you into becoming the victim of a scam.

If you want to go after the people behind the scam, the best bet is to file a complaint with the FTC.

The post Scam Alert: Fake Settlement Offers appeared first on The Student Loan Sherpa.