QUESTION: Michael in Nashville says his wife has student loan debt. He wants to know if he can negotiate the debt. Dave tells Michael why he shouldn’t hold his breath.
ANSWER: They are not. The only thing that would be negotiable is if you are way behind and they’ve nailed you with a bunch of late fees. Some of the collections and late fees might be negotiable. The interest and the principal is not negotiable, and it’s not bankruptable.
There’s a reason for that. The government has guaranteed these. They are Sallie Mae loans, which means if the bank doesn’t get the money from your wife, it can get it all from the government. Why would they negotiate?
If the balance is $21,000 and you offered them $17,000 cash, they would say no. If it’s credit card debt or a second mortgage that’s gone bad, there is no government guarantee then. They either need to get their money from you or they’re not going to get their money.
If you are four payments behind and they think they are not going to get their money, then they will negotiate with you. That’s how people negotiate for pennies on the dollar for stuff like bad credit card debt.