Can Student Loan Debt Be Settled?

[VirginiaGuy]

I just successfully discharged 40,000 dollars in credit card debt and medical bills through Chapter 7 bankruptcy. I am going to check with my attorney to be sure, but I'm fairly certain that my student loan debt was not discharged. One of my private student loans (NOT a federal student loan) went into default and was sent to collections during the bankruptcy. My question is whether or not the collection agency will allow for a debt settlement at this point. I don't make nearly enough to cover the full amount of the loan at any point in the near future, and the creditor will be able to see that based on the info provided during the bankruptcy. Collection agencies tend to be more willing to negotiate than the original creditor because they just want SOMETHING, so I'm wondering if a small monthly payment or smaller lump sum would be accepted by the agency, even though it's a student loan.

[treehugger1]

Unlikely. Student loans are eligible for non-court based wage garnishments, and the statute of limitations does not apply. They likely have nothing to gain by allowing you to settle. On the other hand, give the private lender a call and ask! Everyone wants to build their cash reserves now, so perhaps they might negotiate.

[HHM]

Possible, but not likely. There really is no leverage against a student loan debt.

[frogger]

Very doubtful. Student loans are the cream of the cream when it comes to collections.

[LostNFound]

You may want to ask your attorney about undue hardship exclusion of the exemption to Bankruptcy. This means that if one is able to prove undue hardship, then one would be able to discharge student loans whether they are Government based or Private sector based.

But not so fast ….. Actually being able to prove undue hardship is not that simple, and actually very difficult. Obviously one would think that if one is filing for Bankruptcy it is because of a current hardship, but courts are very cautious on accepting the undue hardship claim.

With that said, it leaves another issue, and it has to do on whether the loan was school certified or not. Loans that were school certified generally will not be permitted to be discharged from bankruptcy. If you are in doubt, I would ask you to call the lending institution and ask them to send you a copy of the certification provided by the school to them prior to the disbursement of the loan.

Does this mean that if the loan was not certified, then it can be discharged? Maybe, but one would have to look at whether the amount of the loan was within the definition of cost of attendance or whether it exceeded the expected family contribution. This means that a Private sector loan that was not certified but was within the definition of cost of attendance and did not exceed the expected family contribution generally may not be discharged thru bankruptcy.

So if you’re looking to discharge your student debt thru bankruptcy, you have a long hard road ahead, and more likely than not, a dead end. I recommend that you consult with your attorney before making any decision