Student Loan Default – Student Loan Settlement (Defaulted Student Loan Student Loan Debt Settlement)
June 15, 2010 by admin
Filed under Student loans
What is a compromise (Settlement agreement)?Compromises are account settlements whereby Department of Ed (through the collection agencies) accepts a reduced overall payment to satisfy the debt(s) in full. The Department of Education can compromise FFEL or Perkins Loans of any amount, and suspend or terminate collection of these loans. It can be difficult, however to negotiate a “good” deal. What is the purpose of the compromise?The purpose of the compromise is to offer individuals that have account(s) in default status a way to satisfy their outstanding obligation(s). If the borrower does not have the ability to satisfy the full balance, the Dept. of Ed and the collection agency will be willing to offer this partial pay-off. Benefits to satisfying the settlement may include: * Paying closer to the original amount borrowed and saving money. * Putting an end to the harassing collection calls. * Your loan(s) will be considered to be satisfied in full. * Wage garnishment ends and the Internal Revenue Service no longer withholds your income tax refund. * Will restore the eligibility to receive additional financial aid. Title IV federal financial aid (Additional student aid):A borrower may restore your eligibility to receive additional Title IV federal financial aid (Student assistance). The settlement amount must be approved in advance by the department of education. By paying the necessary amount on the settlement compromise the Student loan(s) will be considered satisfied. What are the general rules and requirements? * All compromises must be paid by certified funds (cashier’s check, money order, certified personal check) or by the borrower’s own credit card. * Credit card payments from third parties will NOT be accepted on compromises. * Compromise offers will be valid for 90-days from the date of the approved compromise notated in Dept. of educations system by the collection agency. * If it is known that a payment will be coming in after the 90-day deadline, the collection agency may request an extension. Extensions should be rare occurrences. Are there different types of compromises?Standard compromises are compromises where the borrower: * Pays only the current principal and interest (waiver of projected collection costs/fees) * Pays at least the current principal and half the interest (50%); or, * Pays at least 90% of the current principal and interest balance. For example:Waiver of Collection CostsBorrower owes $2500. 00 Principal, $ 1000. 00 Interest, and $875. 00 projected collection fees. The collection agency may offer the borrower a settlement as low as $3500. 00 (Principal and Interest) to fully satisfy the account. Balance: $4375. 00Settlement: $3500. 00Principal and half interestBorrower owes $2000. 00 Principal, $1000. 00 Interest and $730. 20 projected collection costs. The collection agency may offer the borrower a settlement as low as $2,500. 00 (principal + 50% interest) to fully satisfy the account. Balance: $3730. 20Settlement: $2500. 0090% principal and interestBorrower owes $2000. 00 Principal, $400. 00 Interest and $584. 16 projected collection costs. The collection agency may offer the borrower a settlement as low as $2160. 00 (90% of principal + interest) to fully satisfy the account. Balance: $2984. 16Settlement: $2160. 00COMMON QUESTIONS ASKED ABOUT SETTLEMENTSWhat is a forbidden compromise?What documents will I need to pay the minimum amount?My Tax return got seized, can I use that for the settlement?Can my wage garnishment payments be used for a settlement?OTHER TOPICS What is the Rehabilitation payment program?Rehabilitation payment program is the process by which a federal agency or a third-party given authority by a Federal agency, assess the borrower’s financial situation to allow a payment arrangement. Through this process at the Dept. of Ed and the agency’s discretion, the debtors will be allowed to repay their Student loans through installment arrangements (payments). Only after the necessary documents have been obtained by Dept. of ED and the 3rd party agency the borrowers can complete the number of consistent payments required in order to successfully rehabilitate. What is a Treasury Offset?Under this Treasury Offset Program, the Financial Management Service, a bureau of the US Department of Treasury will offset Federal and/or State payments if a borrower fails to pay their obligation. While the most common type of Federal payment offset is Federal income tax refunds, several other types, including social security benefit payments, are also eligible for full or partial offset. In other words, if a borrower has an outstanding debt and they have incoming social security benefits, this too can be subjected to the offset. In addition to defaulted debts held by ED, defaulted loans held by guaranty agencies are also included in the process. Other Federal and State agencies also certify debts for offset, but Department of Ed has historically been responsible for the largest volume of offsets. As a result, many tax professionals, and even the IRS, will automatically assume that an offset has been requested by the Department of Ed when, in fact, it may have gone to some other Federal or State debt. What is Administrative Wage Garnishment (AWG)?Administrative wage garnishment (A. W. G) is the process by which a Federal agency (Dept. of Education) or a third-party given authority by a Federal agency (the collection agencies) may, without first obtaining a court order, order an employer to withhold amounts from the debtor’s wages to satisfy a delinquent debt. Dept. of Education considers AWG to be a tool of last resort. Before using AWG, Dept of Education expect its representatives to have attempted to resolve the debt through voluntary means: attempting to secure the balance in full, an approved settlement, or installment payments that are “reasonable and affordable” based on the debtor’s individual financial circumstances. Some within the industry may consider this the guaranteed recovery method. Representatives must consider whether the debtor presents a legitimate defense to the repayment of the debt(s), and whether AWG may be ineffective because the debtor is self-employed or a Federal employee, in which cases the collection agency will recommend litigation or a salary offset.
