Are you a student who is looking forward to sidestep your student loan payments through debt settlement? If answered yes, you have a tough

road ahead. Unlike credit card debt and personal loans, the private student loans and the federal student loans can’t be dismissed in bankruptcy unless you demonstrate an undue hardship. Before a take the plunge into debt settlement with your student loans, you should know about the debt settlement pros and cons so that you don’t take a wrong decision. Have a look at some facts on settling your student loan debts.

• The borrower will have to pay the principal amount: All those students who dream of taking out huge loan amounts and settling them for pennies are perhaps still living in the dream world as student loans are different from the personal loans. In case of student loans, the lenders aren’t going to settle for an amount that is less than what you owe. Only when you show undue financial hardship, the lender may waive off some collection fees and interest rates. Therefore, there is perhaps no use settling your debts as this will not help you in debt reduction and will also hurt your credit score.
• You shouldn’t overpay: Often times it is seen that the students who have missed payments have accumulated a lot on their interest rates and fees. Such students have no choice and often end up offering a settlement to their lender but before offering the amount, they should check the calculations done by the lenders. They should review their payment history because often there are mistakes. Make sure you don’t overpay as you’re already going through a credit crunch.
• You may have to pay taxes: Depending on the amount that you owe and on the amount for which it is settled, you have to pay taxes. According to the laws, any forgiven debt is taxable under the IRS and therefore if the lender forgives a portion of your debt, this will have an impact on your taxes and you may have to pay tax on it.

Therefore, before considering the debt settlement pros and cons, you should determine whether or not you should take help of this option. Protecting your credit score is very important when you’re a student. Take out debt consolidation loans and negotiate with your creditors if you feel overburdened with student loan debt.