I am able to repay my student loans, which are in default with the Department of Education. When I contacted, they indicated they may settle for 50% of the interest, but even though the account is paid off, it might still appear as a default on my credit record.
They offered me the option to apply for the fresh start program, which would transfer the loans to a different organization and put them out of default. However, I’m not sure if I’ll be able to work out an interest-only payment plan with them.
So, will my default status harm me in the long run if I do pay off this amount through the settlement?
One more item to make sure of. The amount of your student loans that are forgiven frequently qualifies as income for tax purposes. There is no withholding applied, thus the tax bill could be extremely high.
It’s not forgiveness, but it’s a settlement.
Might not make a difference. That’s why OP should check.
Excellent point! When it comes to taxes, the 1099-C issue can definitely provide some major surprises! The good news is that you may be able to avoid paying the 1099-C tax to the extent that you qualify as “insolvent” under the IRS definition. Of course, before making any final decisions, please speak with a qualified and licensed tax professional. Wishing you luck!
Accept the settlement and make the payment. You can then submit to have the reported status altered after it has been paid.
You can dispute the situation with the credit agencies if they refuse to change the status.
Getting the status changed from settled to paid as agreed upon is the goal.
You could find a response to this in r/StudentLoans:
They offered me the option to apply for the fresh start program, which would transfer the loans to a different organization and put them out of default. However, I’m not sure if I’ll be able to work out an interest-only payment plan with them.