Hi. Iâ??m a newbie, so I appreciate any help you can provide. After two years of poor income, Iâ??ve either paid my cc balances in full or am on a payment plan. 3 AMEX accounts went 1.5 years in default but were paid in full this week. Problem: My private student loans (consolidated many years ago). The principal balance is $24,000, and Iâ??m about $4,200 past due (18 mo. +/-). The private lender (Key Bank) turned the loan over to the guarantor which sent it to a CA. After a few months of not returning calls, I called the CA today. I told him that I know the creditor accelerated the debt but Iâ??m ready to pay all past-due amounts in full and asked if they can send the loan back to the lender. They told me â??noâ? â?? two options are (1) a lump sum payment of 70% or (2) pay 20% up front and then pay 1% of balance per mo at 1.75% annual interest until paid. I was ready to take option two, but the loan will continue to show as delinquent until paid in full. At 1% per month, it will take over 8 years of monthly payments all the while showing delinquent. CA then told me they â??mightâ? accept a lump payment of 35% in full satisfaction of the loan. I know there is a â??rehabilitationâ? program for federal loans, but I didnâ??t see any similar requirements for private loans. I tried calling the guarantor (now the owner of the loan), but I canâ??t get anyone on the phone, they donâ??t return calls, and the recording says you must deal with the CA if the loan is with a CA. My credit took some real hits, but I would like to improve it to the extent possible. Whatâ??s going to be worse? â?? settling for 35% of principal balance or making payments for 8 years all the while showing it as delinquent? I am more than willing to pay the loan in full over time (I feel itâ??s a personal, moral obligation but understand others may disagree), but it drives me nuts to think that I will have 8 years of delinquent payments reported when I am paying enough to reinstate the past-due amounts and I am making the monthly payments every month for 8 years. Any suggestions?? Thanks!!
It sounds like you're going to have to deal directly with the CA on this one. I don't believe there are any rehab plans for private student loans. I would go for a lump sum settlement in return for complete removal of the account from your credit reports. You don't want to be paying on this debt for 8 years while it continues to report as past due and in collections.
As far as your credit report goes, the sooner you pay it off and they close the account, the sooner the clock starts ticking for when it will drop off your report. So, if you pay it off today, it will drop off your report in 2018. If you pay for it for the next 8 years, it will drop off in 2026. Either way, if it's a collection account, it will always be drag on your credit score, whether it's paid off or not.
If you can settle for 35%--and make sure you get that in writing--TAKE THE OFFER! Student loan debt will follow you to the grave, and with private student loans, there is really no limit to the interest, fees, and penalties which can be charged once the loan is in default. If there is ANY way to come up with the 35% (or whatever settlement you can negotiate as long as it's not more than 50%) I would get that money together any way I could and take the offer. Once the debt is settled, it will report as "settled in full" or "settled for less than the balance due" which is still a derogatory, however since the account will no longer have new activity, this will affect your credit score less and less as the months go by.
