Unless you are eligible for loan forgiveness, paying down your student loans is the most effective way to eliminate college debt. Foreclosure or bankruptcy will not assist with eliminating college debt.
You may have the best chance of settling your student loan debt by deliberately defaulting on the loan. As with other kinds of debt, a debt settlement company can help with this process as well.
Defaulting strategically is not recommended for a Defaulted private student loan. Read on.
There Is No Long-Term Benefit To Defaulting
Student loan collections are handled by debt collection agencies when you fail to pay. Without prior approval from the Education Department, collection agencies can settle three types of claims:
- We do not charge collection fees
- Since you defaulted, you forfeited half of your interest accrued
- There will be a 10% reduction in your balance
You cannot save money by keeping up with your mortgage or loan obligations. In addition to the principal and interest on defaulted student loans, collection charges can be as high as 25%.
Thus, collecting charges can offset any savings you may make on principal and interest.
Student loan settlements are most likely to benefit students who have been in default for more than ten years, because the settlement will reduce the accumulated interest. Nonetheless, the Educational Department of the United States does not allow defaulted loans to be repaid for less than the amount owed.
Defaulting on student loans will not save borrowers money if they are already paying off their loans.
By defaulting on your student loans, the collection agency can report your past-due account to three major credit bureaus, which can ruin your credit. The interest rate will likely increase in the near future, so we hope that you will not have to borrow money again. It may be difficult to qualify for a loan if your credit score is poor.
In general, the more financial losses you suffer, the higher your risk of defaulting on your student loans.
The Most Effective Method Of Avoiding Repayment Is To Default On Student Loans
Should you have difficulty making your current monthly payments, below are some better options you can consider.
Repayment Assistance Or Forgiveness Of Student Loans
State and local governments, as well as some employers and government agencies may offer you help in repaying your student loans. In many cases, you can get rid of a large amount of debt in a short time if you get help paying off your debt, or if you get outright forgiveness.
Repayment Of A Loan Is Based On Income
With a U.S. Department of Education income-driven repayment plan, you can reduce your monthly payments. We will pay you a percentage of your discretionary income based on your income and family size.
You can forgive the balance of the loan after 20 or 25 years if you choose a repayment plan based on income.
Students Have The Option Of Refinancing Their Student Loans
You can save money by refinancing your student loans if you have excellent credit and an income that is stable.
When switching from government to private loans, you may not be able to take advantage of forgiveness programs or income-driven repayment programs.
If you refinance with a lender who charges variable interest rates, your costs may increase over time. When it comes to refinancing, you may want to consider a fixed-rate mortgage.
