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. The Department of Education has not given out much guidance on what they are likely to accept.
The Department has Standardized Compromise and Write-Off Procedures for use by guaranty agencies. These are for negotiated agreements between borrowers and guaranty agencies to accept less than full payment as full liquidation of the entire debt.
To summarize the guidelines:
- Collection costs can be waived.
- 30% of principal and interest can be waived. If a guaranty agency chooses to compromise more than 30%, it cannot waive the Department’s right to collect the rest.
WARNING: These agreements will only stop guaranty agency collection activity, but you will still owe the debt. You can negotiate harder and try to get the Department or guaranty agency to cancel the debt. Also, guaranty agencies are permitted to accept these settlements, but they are not required to do so.
The Department has also issued the following guidelines for compromising Direct Loans:
|Type of Compromise:
|1. Waiver of Fees||Principal and Interest||All Debts|
|2. 50% Interest + Fees||All principal and 50% interest||All debts|
|3. 10% P&I||90% P&I||All debts|
|4. Discretionary||All debts|
The Department also discusses general guidelines for compromises in its 2009 Private Collection Agency manual. The Department took this manual off-line, but it is available on the Student Lending Analytics blog. (see chapter 7).
Schools may also write off very small Perkins Loan balances.