Negotiate a settlement
Student loan settlement is possible, but it comes at a cost: you and your cosigner’s credit scores will take a hit, and collection fees may be added to the loan balance. You can’t settle a loan that’s in good standing or delinquent. You have to miss payments and be in or near default before your loan holder will agree to settle. You also have to have enough cash to pay the settlement amount in a lump sum or over a few months.
On top of those costs, there are tax implications of settling student loan debt. You may have to pay the IRS taxes on the difference between the settlement amount and the loan balance.
Learn More: Student Loan Debt Relief Attorney
Get a discharge in bankruptcy
Bankruptcy might be an option to get rid of private loans. But to get any relief, you have to follow a two-step process:
The adversary proceeding is a lawsuit where you file a written complaint asking the judge to wipe out your student loan debt. To win, you’ll need to prove one of two things:
Learn More: Can You File Bankruptcy on Student Loans?
File a lawsuit
Lawmakers have passed laws like the Truth In Lending Act, the Consumer Financial Protection Act, and the Fair Debt Collection Practices Act to protect you and other borrowers from financial harm.
If a private lender violates one of these consumer rights laws, you may have the right to file a lawsuit against the company in state or federal court.
But before you rush off to court, keep in mind that lawsuits are expensive. The litigation costs could be more than your current loan balance. Those costs are why consumer rights violations are usually handled collectively with a class-action lawsuit. The cases allow the costs to be shared with thousands of student loan borrowers harmed by the same practices.
The recent Navient lawsuit settlement, which wiped out $1.7 billion in private student debt, is a good example. It took over five years and attorney generals from 39 states to reach that deal.
If you wait long enough, you may be able to get out of paying your private student loan because the time to collect has expired. Each loan you borrowed has a limited period of time built into the contract that the creditor must file a lawsuit against you to recover the debt.
If the creditor or debt collector starts the lawsuit after that legal time limit has passed, the claim may be “barred” because it’s outside the statute of limitations.
Take a copy of your promissory note to an attorney in your state to find out what the statute of limitations is where you live.
Federal loans don’t have a statute of limitations. To get rid of them, you’ll need to pay off the balance in full or qualify for a loan forgiveness option like Public Service Loan Forgiveness or Total and Permanent Disability Discharge. Read more about how to get a copy of a student loan promissory note.
Learn More: Do Student Loans Go Away After 20 Years?