If you're reading this blog, you are probably struggling with student
loan debt. You might be on the brink of missing a payment, or you might
have already fallen into default. You may be curious as to what a lawyer
could do to help resolve your debt.
In order for a lawyer to identify how they could be of potential assistance,
they first need to establish the types of loans you have as well as their
respective status with the lender. For example, some people are struggling
with private loan debt, some are struggling with federal loans, and many
are struggling with a mix of both types of loans. It is important to establish
the loan types and status' because they have different methods of
One possible way a lawyer may assist in reducing student loan debt without
the borrower defaulting is by obtaining a discharge or loan forgiveness.
In New York, discharging a student loan in bankruptcy requires a showing
of "undue hardship" which is a very high threshold to meet under the
Brunner Test. However, there are programs available to certain qualified teachers and
public service workers that provide forgiveness of loan debt. Furthermore,
military veterans and other individuals with disabilities that effect
their ability to work may apply for a
disability discharge for their federal loans. These programs are generally unavailable on private loans.
Many people are interested in learning about
how a lawyer can negotiate a reduction for student loan debt. It's important to understand that regardless of the loan type, most
lenders will be unwilling to discuss a settlement unless the account is
already in default status (however, being in default does not ensure that
a lender will necessarily negotiate). However, defaulting on debt has
it's own dangerous consequences.
In addition to being in default, another basic element to any successful
settlement is that you must have sufficient funds available to settle
your particular type of loan, whether in lump sum, in installments, or
a combination of both. An attorney can give you an idea of the types of
settlements that have been achieved on loans similar to yours, however,
keep in mind that results vary.
Settlements on government loans in New York can be challenging to achieve,
even for a seasoned attorney. Since the government has the ability to
garnish wages and seize tax refunds without bringing a lawsuit, a lender
may decline negotiations alltogether unless the debtor is unemployed and
has substantial hardship or other extenuating factors (for example, the
debtor moved abroad). Even in situations where a federal student loan
could be settled for a reduction, the reduction will rarely be in excess
of 15%-20% off the current balance, and the lender may require payment
of the settlement in 90-days or less.
Many of our client's cannot afford to pay a settlement on their government
loans, and as such, they explore other resolution options such as
student loan rehabilitation and
loan consolidation programs. These programs can help remove a debt from default status and
put you back onto a payment plan, such as income-based repayment. This
type of plan is intended to help keep payments affordable.
On the other hand, most private loans do not offer income sensitive payments.
However, the potential to
settle a private loan for a substantial reduction is much greater then a federal loan. Our office
has successfully negotiated numerous
settlements in the range of
50% - 75% off with private lenders such as Sallie Mae, Navient, National Collegiate,
Key Bank and Wells Fargo.
There are serious consequences to leaving student debt unresolved. In addition
to negative credit reporting, a lender operating in New York may bring
a lawsuit against the primary borrower (and co-signer), and if a judgment
is obtained, the lender may attempt to garnish wages, freeze bank accounts,
or even place a lien on real estate. For government loans, oftentimes,
they can commence a garnishment or treasury offset without bringing any
action in court.
Working with an attorney knowledgable in the facets of New York student
loan law can help ease navigating the complexities of the resolution options
and negotiations and ensure that you pursue the best available option
under your circumstances.