When it comes to negotiating interest rates and other terms on a student loan, the lenders hold nearly all the power.
Borrowers with existing student loans have signed a contract, and there is little incentive for the lender to cut the borrower a break. Those who are shopping for student loans likewise have little room for negotiating. A computer formula determines rates and terms as lenders lack the time and the desire to haggle with potential borrowers on an individual basis.
While most student loan companies might like consumers to conclude that there is zero chance for negotiating, the reality is that there are spots where a prepared borrower can get lenders to back down. The key is understanding when borrowers have leverage and how to use that leverage.
Negotiations Before a Student Loan Contract is Signed
Potential borrowers are a category of consumers that might be able to sway a lender into changing the terms of a student loan agreement.
From the consumer’s perspective, if the student loan company isn’t willing to offer the desired terms, the borrower will just go elsewhere.
Sadly, borrowers cannot just send an email to lenders listing the terms that they want. Lenders are not willing to haggle back and forth to reach a deal.
A borrower’s leverage comes from having an offer with another company. This leverage exists for those looking for private loans for school, and it exists for people looking to refinance their existing student loans.
The only time a lender will “match” what another company is doing is when the consumer has a contract from another company ready to be signed. This contract is available after the borrower has gone through the initial approval process and completed underwriting.
This strategy works best for people who are shopping for student loan interest rates but have a preferred company. If the favorite company offers a rate that is slightly worse than another lender, they may match the better deal when shown the final terms.
Cutting a Deal on an Existing Contract
Because lenders draft the student loan contracts, and they know the law is on their side in bankruptcy proceedings, there is very little room for negotiation.
We have seen this play out with borrowers who wish to settle their remaining student loan debt with a lump sum payment. Borrowers may think that it is fair to settle a $20,000 student loan balance for $18,000. However, the lender will typically insist on full payment.
Those who are in a strong financial position will have much better odds of getting better loan terms via student loan refinancing. Refinancing is usually much more straightforward than negotiating a new deal, and it is the path that will generally lead to the best deal possible.
The borrowers who are struggling are the ones who have some leverage and a chance at negotiating improved loan terms. If the lender thinks that there is a chance that the borrower will default, they may be willing to accommodate the borrower by temporarily reducing interest rates or adjusting the loan term. An example of this process working out would be the Navient Rate Reduction Program.
Those who are unable to afford their monthly payments should try the following process…
The Steps for Negotiating New Terms
The ideal point of contact and the exact process will vary from lender to lender. These steps should be viewed more as a rough guide than an iron-clad set of rules:
- Speak with someone with authority to help – This step sounds obvious, but it can be surprisingly hard. Many of the customer service representatives don’t have permission to change interest rates on existing loans. If someone isn’t allowed to provide the remedy you seek, politely ask to speak to someone who can. It will save everyone some time.
- Explain your situation quickly, but have the details ready – Saying I cannot afford my monthly payment isn’t enough. Explain that you take home X dollars each month, Y dollars are left for things like food, rent, and utilities, and you can only pay Z dollars per month. Have your expenses in front of you before making the call and think about what you can realistically afford to pay.
- Don’t settle for a forbearance or a deferment – Most lenders will quickly offer this “remedy,” but in reality, a deferment or forbearance might make things worse. Explain that a temporary break in payments won’t fix things. You don’t see your finances changing in six months, and by delaying payments, your balance will only grow, and the situation will become worse. The goal is to come up with a plan that leads to the loan being repaid.
- Be reasonable with your request – The lender won’t forgive your debt because you asked nicely. Reasonable requests would be a reduction in the interest rate or extending the amount of time that you have to repay the loan.
- Be kind on the phone – People working in phone support get yelled at by frustrated customers all day. Being a jerk will not increase your odds of getting help. You have signed a contract, so the only break you will get is if the lender chooses to give you one.
- Keep calling if the first couple calls don’t succeed – Student loan information is notoriously inconsistent from one representative to the next. One person telling you that nothing can be done is hardly definitive. There is an element in luck to being successful in these requests, and more calls increase the odds of a favorable outcome.
If you are successful in your request, keep detailed notes on the new terms. Ideally, get it in writing from the student loan lender. Though uncommon, you may need to prove what you were told.
Also, if you are able to talk to someone who is especially helpful, politely ask for a method to communicate with them directly. A direct line of contact with a helpful student loan representative is incredibly valuable.
Finally, if all else fails, consider filing a complaint with the Consumer Financial Protection Bureau.
Getting a Lawyer Involved
While lawyers do have plenty of training and experience in negotiations, we don’t have any special powers to make lenders yield to our will with just a single phone call.
Student loans present an especially difficult situation because of the bankruptcy rules for student debt. To boil a lot of law into a single sentence: it is much harder to get bankruptcy protections on student loans than it is for most other debt, such as credit cards, auto loans, or mortgages. Where empty threats might work in other forms of consumer debt, student loans tend to be more tricky.
That being said, those that are considering bankruptcy should discuss their student loans with their attorney. A bankruptcy attorney may be able to get the student loan company to agree to modified loan terms.
Final Thought: Think Like a Lender
Lenders are in business to maximize profits. As a result, getting a break on loan terms is usually pretty difficult.
That being said, there are times where it is in the best interest of the student loan company to cut the customer a break. As borrowers, we need to identify those circumstances and use them as leverage when possible.