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Private student loan debt only affects a small percentage of overall student loan borrowers, but it sure does cause big problems for those who have them. Private student loans are notoriously inflexible, and despite the recent introduction of some limited payment modification programs, I still hear from borrowers every week who are struggling to manage these loans.

If you’re looking for information on private student loan forgiveness, you can read this article I wrote here.

Making years of payments without seeing real progress:

The common refrain that I hear, over and over again, is that despite paying for years; the balance is not going down or may even be increasing over time. People understandably feel like they are throwing their money away. And this is just the loans that are current – for delinquent or defaulted borrowers, navigating a complex web of vaguely threatening calls and letters is the norm.

“Accounts will be ‘terminated’ if a payment isn’t made. “We intend to file a lawsuit against you if no payment is made before charge-0ff”. “Your account has been escalated to our super duper, last chance, really seriously, for real-for real, no we are completely not joking department”.

The voices coming across the other end of the line are often rude and threatening. The letters are scary, but vague, and look like high ranking directors or vice presidents are personally getting involved with the accounts. Options are limited! Last chance! Call by tomorrow at 5pm, or we will force you to sell your internal organs on the black market.

The calls and language used are intentionally opaque, because the collectors know that playing on a borrowers’ lack of understanding of a particular lenders’ collection cycle -and letting the borrowers’ own imagination collect on the account for them- is a surefire winning tactic. This is not to say that lawsuits don’t occur on private student loans. They do. But from my experience, there are many, many opportunities to settle or work out a payment plan with Navient private student loans prior to this happening – and with other private lenders as well. However, the vague threat of legal action is often brought up at multiple times in the collection cycle, and is often the go-to response for a collector who is hard-balling or bluffing on a borrowers’ settlement offer.

People are surprised when they attempt to negotiate a settlement on their own and are flatly refused, or are denied a reasonable payment plan during this process. And in many cases, they’ve unknowingly given up information about their income or assets that can hurt their chances of settling down the road. Negotiating a settlement is definitely not like asking for a different payment date or signing up for electronic debit payments – it’s an adversarial process that is not for the faint of heart, and is essentially a renegotiation of the original contract. It can take months and months of negotiations – negotiations which will not be successful unless a specific strategy to reach a desired settlement is implemented from the very first negotiation call. Lenders don’t really want to settle, so they will try everything they can to scare people back into making payments on 100% of the balance plus interest first – locking them back into the same never-ending cycle of perpetually paying down inflexible private student loans.

Collectors use the threats they think will be the most effective in getting borrowers to pay up.

We are even seeing Navient try different tactics to twist and tweak their threats for maximum effectiveness. In the past, borrowers who have contacted me for help settling their private student loans have told me that immediately before charge-off (6 months of nonpayment), they received a form letter that used very strong language – namely, that the account will be referred to a collection attorney and that they intend to file a lawsuit. I have seen many times that this is just an empty threat, for the time being anyway. After receiving these threatening letters about impending referral to an attorney collection agency to file suit, the accounts instead remained with the lenders’ internal collections department for several more months. During which time, I was able to negotiate lump sum and structured settlements.

Recently, this tactic has become even more exaggerated. Clients received the same letter, “signed” by the VP of Navient Credit, that specifically says their account will be referred to an attorney in the clients’ state upon charge-off – and it even names the attorney collection firm, and says specifically that they intend to file a lawsuit. Instead, just as before, the client received calls the next month from a regular collection agent at Navient internal collections.

I don’t mean to be rough on Navient. Believe it or not, I’ve talked to some good people that work there in my many negotiations calls with them, but at the same time I think it’s fair to criticize them for flat out lying to borrowers about what is happening during the private loan collection cycle. What borrowers don’t realize is that these scary sounding generic collection letters are mass produced and are completely identical – the only thing that is different is the name of the attorney collection firm in that particular borrower’s state. Navient made the calculation, which was very intelligent on their part, that naming a specific attorney collection firm in the borrowers state could get them to call in and make a payment before the account defaults.

It’s not time to panic, but it is time to take action.

If an account is actually referred to a “same state attorney” collection firm, it’s nothing to sneeze at, but the threat is often blown out of proportion. Private lenders can’t afford to sue every single person who defaults on their loans, but they know that it’s an effective collection threat. It sure is a good thing that private lenders are making these threats directly, because if they had third party collection agencies making these threats, it could be a violation of the Fair Debt Collection Practices Act. The FDCPA only applies to third party collectors unfortunately, but some states have adopted similar laws that govern the conduct of original lenders.

When an account is actually referred to a “same state attorney” collection firm, as I call them, it’s time to make the account a priority if you haven’t already. It’s important not to panic or engage in doomsday thinking, but at the same time there is a potential threat of a lawsuit at this point. As renowned credit card debt negotiator Jared Strauss told me the other day, attorney collection firms are often just a normal collection agency with an attorney in the back – and he would know, having spent years on the other side of the industry working for and directing collection agencies.

A reputable consumer defense attorney can defend and settle unsecured debts during the legal process if a borrower is facing an actual lawsuit, but there are often many chances to settle on your own or with a non-legal negotiator prior to this happening. Even the debt collection attorney firms want to settle or get a payment rather than having to take someone to court. Studies have shown that 80-90% of civil cases settle outside of court, and my experience settling “same state attorney” collection accounts reflects this also – just take a look at the many attorney collection firm settlements on my homepage slideshow.

Open all collection letters and take a proactive approach.

At the same time, many borrowers ignore mail – including court documents – and end up getting default judgments. Once a judgment is attained, the creditor can begin the process of trying to garnish wages or levy a bank account via judgment execution. This is the worst case outcome and you want to do everything you can to avoid it. Taking a proactive approach to settling or negotiating a payment plan on unpaid debts is the best way to prevent this from happening. Open all your mail regarding collection accounts, and at the minimum screen your voicemails even if you’re not communicating with debt collectors who are calling.

If you’ve actually received a summons, you need to hire a reputable consumer defense attorney as soon as possible – there’s no two ways about it. However, this is the last step of a lengthy collection process, and if you’re proactive; you or your professional negotiator can work out a settlement or payment plan long before this happens. Judgments can still be settled in some cases, but it’s usually better in the long run to settle accounts prior to a judgment being awarded to the creditor. Settling a judgment does not remove it from your credit report, but it will show that it has been paid. You will usually get a better settlement on a non-judgment account also.

I’ve never had a client get sued as long as they hire me to negotiate prior to the legal process being initiated by the lender. However, I am quick to tell clients that I cannot provide legal advice, nor can I represent them in negotiations if they have been served a summons. In most states, borrowers have 20-30 days to respond to a summons. I’ve heard that some borrowers have been able to negotiate a settlement even during that period, but in my (non-legal) opinion; the creditor has much more leverage during these types of negotiations and a better settlement can be obtained by hiring an attorney to first defuse the impending threat of a judgment.

Lenders came up with the idea of settlement in the first place.

It’s important to note that if lenders did not want to settle, they simply wouldn’t. Despite the adversarial process, this is a system that is ultimately created by the lenders themselves. With high interest rates, lenders are calculating that a certain percent of their borrowers will default and never pay, or pay a reduced amount; and the high interest rates make sure that they will still turn a profit overall.

While taking a beating in the stock market in 2015, largely due to federal loan practices; in 2014, Navient originated $4.3 billion in private student loans with expected losses of $116 million to $130 million. Put another way, Navient expected to lose over $100 million on their private loan portfolio – which seems to be the closest thing to actual Navient private student loan forgiveness. By the way, their total private loan portfolio is over $8 billion – a pretty good chunk of change. Next to the FFEL program, loans which Navient services on the federal side; private student loans are their second largest portfolio. Since the expected losses are baked into their figures, we can see that Navient expects to settle some accounts each year – and expects to not be able to recover on other accounts at all.

Taking a logical, strategic, and proactive approach to settlement or repayment planning affords the borrower with many opportunities to work out mutually acceptable arrangements before the long, winding path of debt collection leads to wage garnishment, liens, or bank account levy – the nightmare scenario that all defaulted borrowers fear, but far fewer actually experience. If you’re interested in hiring me to settle your private student loans (and make sure they stay settled), fill out my quick online evaluation form here.