My Navient Student Loans Are Almost Paid But How Can I Settle Them?

Question:

Dear Steve,

I have $13,364.87 debt in federal school loans through Navient, previously Sallie Mae. I have almost paid off the accrued interest. Only $26.53 of that total is interest. I have been paying since 2000.

I have two loans. One was originally $23,972.99 and is now $10,905.11. The other was originally $5,500.00 and is now $2,486.29.

Do you know how I can settle the loan? What can I say or do to negotiate a settlement?

I appreciate your help.

Michael

Answer:

Dear Michael,

Frankly I would not try to settle them. Here’s why. At this point settlements seem to be offered mostly to people who are just after charge-off and significantly delinquent.

Going delinquent is a strategy for some but not a blanket solution for all. Being in significant default on your student loans while lower your credit, subject you to being sued, put any cosigner that you might have in potential trouble with Navient and the forgiven part of your student loans would be taxable as income if you are not insolvent.

But all of that applies to private student loans. Since these are federal student loans then the rules are very different and the options fewer to settle unless you wind up sued by the Department of Justice over you student loans or got for an undue hardship discharge through a consumer bankruptcy. Click here for more information on the bankruptcy discharge. Otherwise, the government has no incentive to settle since if you you fall behind they can garnish your wages and intercept any tax refund due, without taking you to court. Additionally, a default in your federal student loans could add an additional 20% to the balance as a collection penalty.

You’ve come so far and if it is within your ability to finish the payoff of your loans, I’d suggest that strategy. The benefit for doing that is a better credit record than letting it all hit the fan when you can afford to make the payments.

Now there are some strategies like consolidating the two loans through a Direct Loan to lower the monthly payment. Click here for information on how to do that.

But consolidating the loans for a lower period of time may lower the monthly payment but will increase the overall amount you would repay. Typically the least expensive way to repay federal student loans is with the standard ten-year repayment plan unless you qualify for one of the few federal student loan forgiveness program.

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.