Friday, May 30, 2014

Q&A: Will Private Student Loan Lenders Do a Pay-for-Delete?

Hi Lee,
Someone on one of the forums I read suggested you might have some insight on this.
I have a large package of student loans from grad school (around 80k). Interest rates on the different packages are in the 6-8% range. The loans are held by a private servicing agency that bought them up from the original lender. I am current on all loans at present but there is significant negative payment history in the past 3-4 years.
Due to some fortunate circumstances I am now in a position to pay the loan off in full. However, I am wondering if I should be trying to extract any perks or considerations from the loan servicing agency as a condition of paying in full, e.g. having negative history removed from my credit report. I don't know whether they would be at all motivated to do something like this. 

As an aside, I also noticed that the "full payoff amount" listed on my loan statement is slightly higher (by about 1200, or the equivalent of one monthly payment) than the amount owed. Is that normal? Like a small early payment penalty or something? 
Can send more details if you need them, but would prefer my name / name of the agency not appear on the web. 




I agree that you're in a power position here and definitely think you should milk that for all its worth. As far as your negotiation options are concerned, here are three:

1. Request a Pay-for-Delete 

For those just stepping into the classroom, a pay-for-delete is just what it sounds like: you pay the debt, the lender removes the late payment notations or, in some cases, entire tradeline, from your credit report. Lenders and collectors are a lot less likely to accept pay-for-delete agreements than they were 10 years ago because it violates the contract they have with the credit bureaus. But with an amount this high and you willing to pay in one lump sum, its possible they may just bend the rules for you. And those negative payments may work in your favor toward this goal. 

Ideally, the student loan lender wants you to pay off your loan over the span of the original agreement. Paying it off early infuses the lender with extra cash, but the lender loses out on all the interest that would have accrued if you had continued making your scheduled payment every month until the loan was paid in full. But you have a spotty record of paying this loan, and any collector who can do simple addition knows that makes you a much higher default risk than someone who has never skipped a payment. Financially, its a smarter move for them to accept your offer and remove the lates from your credit report. 

Of course, there is no guarantee this is going to work. If the rep you speak with refuses your pay-for-delete proposition, call back and ask another rep. You can also ask to speak to the supervisor and make him aware of what you want to do, since call center reps often have neither the ability nor the authority to alter consumers' credit records. 

2. The Goodwill Letter

I don't know how many late payments you have Anonymous, but you may be able to have a few removed using the age-old "goodwill letter." A goodwill letter gives you the chance to explain the circumstances around  your late payments and point out that, due to circumstance, those lates aren't truly indicative of your financial risk level. Ask that the lender remove the late payment notations as a gesture of good will and, if it does so, you will follow with your own gesture of goodwill by paying off the loan in one lump sum. Because this isn't a direct pay-for-delete, and because goodwill letters are still fairly effective, option 2 is more likely to work than option 1.

Make sure you send your letter to a CEO, a President or Vice President or head of the credit reporting division. The important thing is that you reach a person who has the power to fix things for you. That's a lot less likely to happen if you send your letter off to the company and it gets opened and read by a peon who doesn't really care one way or the other. Don't trust someone else to send your letter to the top, you need to make sure it gets there. 

I doubt significantly that a lender would be willing to remove more than two or three late payments from your credit report due to a goodwill letter--even though you're paying in full. If you choose this route, take what they offer you. Having a few lates removed is better than none. Just make sure that the lates they choose to delete are the most recent ones, since recent information has a larger impact on your credit scores than older information. 

3. Debt Settlement

Now, I don't even like talking about debt settlement, but it wouldn't be fair of me to not bring it up at this point. You've got a lump of cash and you want to get rid of that student loan. If the company refuses to modify its tradelines in exchange for payment, it may still settle the debt for less than you owe provided you pay the new debt in one lump sum which, clearly, you can do. While this doesn't directly benefit your credit, it leaves you with additional cash with which to pay down other debts. 

A few words of warning: If the lender agrees to settle the student loan, make sure that you request in writing an agreement that the debt will be reported to the credit bureaus as "paid in full," and that the remaining unpaid balance will not be sold to a collection agency. If they report it as a "settled" debt, its just going to make things worse, credit-wise. Plus, you don't want to believe you've put all this behind you only to wake up one morning from a slew of collection calls all demanding that you pay the remaining balance on a student loan you already settled. Tread with caution with this one. 

I'm sorry I couldn't be of more help than this. Also, your payoff amount is higher because you aren't just responsible for the loan's current balance but also any interest that would have accrued if you'd adhered to the original payoff schedule. 

Best of Luck,

Related Posts:

Death of the Pay-for-Delete Agreement

Student Loan Collection

Can You Settle With a Federal Student Loan Collection Agency?

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