Can You Settle Student Loan Debt?

Edited by Hannah Locklear

Student loans can wreak serious havoc on your finances, especially if you don’t have the means to repay them. The monthly payment for a student loan can stretch into hundreds of dollars, impacting your disposable income and reducing your ability to afford an asset like a home.

Getting rid of student loans has traditionally been difficult. It’s next to impossible to eliminate them through bankruptcy, so most people are stuck with them until they repay them, no matter their financial circumstances.

Sometimes, people wonder whether they can settle their student loans like they can with a credit card or loan. While settling student loans is possible in some cases, it takes quite a lot of effort and may leave you with different results than you seek.

Let’s explore the potential for settling student loans and alternative options if settling won’t work.

Who can settle student loan debt?

If you have a traditional student loan through the Department of Education, you may be able to settle it. However, you’ll need to jump through a lot of hoops. The Department of Education has the power to stop the collection of student loans and can negotiate with you for a settlement.

Only some people will meet the requirements for a settlement. You’ll likely need to prove undue financial hardship and an inability to repay through traditional means.

In many cases, your lender will require you to default on your loan before they allow you to settle. Federal student loans default after 270 days of non-payment, while private student loans default between 90 and 120 days of non-payment.

A default on your student loans is a serious negative mark on your credit report. You’ll likely find it challenging to obtain a loan or mortgage after defaulting until the situation resolves.

If you intend to settle your student loans, you’ll need to make sure you have the money available to do so. Often, student loan balances run into tens of thousands of dollars. Even if you can reduce the balance of your loans by half, you may still owe $10,000 or more.

Usually, a settlement arrangement calls for a lump-sum payment to wipe the remaining record clean. Your efforts will fail if you don’t have enough money to settle.

Student loan servicers do not have to accept a settlement

Student loan servicers are under no obligation to accept your settlement offer. In most cases, there is little reason for them to do so. Student loan servicers have tremendous legal protections that allow them to sue you to force you to repay your debts.

Even if you begin the settlement negotiation process by defaulting on your loan, the servicer does not have to accept your offer. If the loan servicer does, it may only entertain offers as high as 90% of the total value of your debt, which may result in very little savings to you despite all of your efforts.

Settling your student loans may impact your credit score

Settling your student loan will not benefit your credit score. When you default on paying your loan, your credit score will likely fall hard, fast. If you manage to negotiate a settlement, your lender will probably report you failed to abide by the terms of the agreement or that you paid less than the total value of your loan.

Following the settlement, you can build your credit score back up, but it will take time. You will likely find it challenging to obtain a credit card, buy a home, or purchase a car with a loan.

Start the process of settling my student loan

If you want to settle your student debt, try using these steps:

1. Determine if you want to settle with a lump-sum payment or monthly installments.
2. Calculate how much you can afford to pay off.
3. Contact the debt collectors and make an offer.
4. Negotiate a settlement.
5. Get the debt settlement agreement in writing.

Let’s break down these steps a little further.

1. Determine if you want to settle with a lump-sum payment or monthly installments

If you’re determined to settle your student loan for less than you owe, figure out what you can afford to pay in a lump-sum payment arrangement. By offering a lump-sum payment, you’re agreeing to pay off the debt in one payment, usually at a percentage of the original amount.

If, on the other hand, you cannot afford a lump-sum payment at the time, consider setting up a new, monthly payment structure. Your settlement agreement will involve monthly installments that last for several months or years until the balance is paid, usually in full.

Both of these methods work, and most debt collectors are willing to accept either type of settlement.

2. Calculate how much you can afford to pay off

Once you’ve decided which type of settlement you’re aiming to reach, calculate how much money you can actually afford to pay off in a lump-sum payment or monthly installments.

You’ll want to look over your finances carefully and budget it out. If you do not fulfill your settlement agreement because you cannot afford it, bigger issues can arise like a debt lawsuit.

3. Contact the debt collectors and make an offer

We advise starting with at least 60% of the value of your loan. However, don’t be surprised if your creditor requests more.

Allow your student loan to go into default. Once it does, send your student loan provider (or debt collector) a settlement offer stating something like:

“I currently owe [$___] for [account number]. I don’t have that kind of money to pay off the loan currently. But I do have [$___] that I can pay within 30 days to settle the debt in full. If you accept, please respond to this message with a settlement agreement. If you would like to counter, please reply with your counteroffer amount.”

4. Negotiate a settlement

Wait and see how your student loan provider chooses to respond. Chances are high that they will come back with a counteroffer. You may go through several rounds of negotiation before you reach an agreement.

Most importantly, don’t accept an offer that you know you cannot afford. This will only make matters worse.

5. Get the debt settlement agreement in writing

If your student loan provider offers you an agreement you can afford to pay, get it in writing before transferring the money to settle your loan.

You’ll want to ensure you fulfill your end of the agreement entirely. If you don’t, the student loan provider may decide to cancel the contract, putting you at risk of legal action.

Loan service providers and debt collectors will usually draft the settlement agreement for you, so just make sure to review it carefully before signing. Here’s a debt settlement agreement example.

For more tips on how to settle a debt, check out this video:

What are the alternatives to settling my student loan debt?

There are a few options to alleviate your student loans if you look into them.

An income-driven repayment plan is the first alternative available to many student loan holders. Under an income-driven repayment plan, you make payments based on your annual earnings and family size. In many situations, an income-driven repayment plan can significantly reduce your monthly repayments to an affordable amount.

You can also consider a student loan discharge. Some consumers find a discharge to be an option in some instances, like if the college they attended closed before they could complete a degree program or if they suffer from a total and permanent disability.

You may obtain public service loan forgiveness if you work for a government agency or nonprofit. To qualify, you’ll need to make at least 120 payments before the servicer forgives your loans.

Finally, you can consider refinancing your loan. Refinancing can lower your interest rate, allowing more of your monthly payment toward your loan's principal rather than interest and fees. However, if you refinance your loan with a provider outside the government, you may lose certain benefits, like consideration for an income-driven repayment plan.

SolosSuit can help you fight a student debt lawsuit and win.

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states.

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Guides on how to beat every debt collector

Being sued by a different debt collector? Were making guides on how to beat each one.

• Absolute Resolutions Investments LLC
• Accredited Collection Services
• Alliance One
• Amcol Clmbia
• American Recovery Service
• Asset Acceptance LLC
• Asset Recovery Solutions
• Associated Credit Services
• Autovest LLC
• Cach LLC
• Cavalry SPV I LLC
• Cerastes LLC
• Colinfobur
• Covington Credit
• Crown Asset Management
• CTC Debt Collector
• Cypress Financial Recoveries
• Delanor Kemper & Associates
• Eagle Loan of Ohio
• Educap
• Estate Information Services
• FIA Card Services
• Forster & Garbus
• Freshview Solutions
• Fulton Friedman & Gullace LLP
• Harvest Credit Management
• Howard Lee Schiff
• Hudson & Keyse LLC
• Integras Capital Recovery LLC
• Javitch Block
• Jefferson Capital Systems LLC
• LVNV Funding
• Mannbracken
• Mariner Finance
• Medicredit
• Michael J Adams PC
• Michael J Scott
• Midland Funding LLC
• Mullooly, Jeffrey, Rooney & Flynn
• Mountain Land Collections
• MRS Associates
• National Collegiate Trust
• Nationstar Foreclosure
• Northstar Capital Acquisition
• NCEP LLC
• NRC Collection Agency
• OneMain Financial
• Palisades Collection LLC
• Pallida LLC
• Paragon Revenue Group
• Pinnacle Collections Agency
• PMAB LLC
• Portfolio Recovery Associates
• Provest Law
• PYOD LLC
• Reunion Student Loan Finance Corporation
• Revenue Group
• Regents and Associates
• RSIEH
• Salander Enterprises LLC
• Second Round Sub LLC
• Security Credit Services
• Sherman Financial Group
• Suttell and Hammer
• T-Mobile
• Transworld Systems
• Tulsa Teachers Credit Union
• UCB Collection
• Velo Law Office
• Velocity Investments
• Waypoint Resource Group
• Weinberg and Associates
• Wolpoff & Abramson

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

• Bank of America
• Capital One
• Chase
• Credit One Bank
• PayPal Synchrony Card
• SYNCB/PPEXTR
• Synchrony Bank
• Target National Bank
• Wells Fargo

Going to Court for Credit Card Debt — Key Tips

How to Negotiate Credit Card Debts

How to Settle a Credit Card Debt Lawsuit — Ultimate Guide

Get answers to these FAQs

Need more info on statutes of limitations? Read our 50-state guide.

Why do debt collectors block their phone numbers?

How long do debt collectors take to respond to debt validation letters?

What are the biggest debt collector companies in the US?

Is Zombie Debt Still a Problem in 2019?

SoloSuit FAQ

If a car is repossessed, do I still owe the debt?

Is Portfolio Recovery Associates Legit?

Is There a Judgment Against Me Without my Knowledge?

Should I File Bankruptcy Before or After a Judgment?

What is a default judgment?— What do I do?

Summoned to Court for Medical Bills — What Do I Do?

What Happens If Someone Sues You and You Have No Money?

What Happens If You Never Answer Debt Collectors?

What Happens When a Debt Is Sold to a Collection Agency

What is a Stipulated Judgment?

What is the Deadline for a Defendants Answer to Avoid a Default Judgment?

Can a Judgement Creditor Take my Car?

Can I Settle a Debt After Being Served?

Can I Stop Wage Garnishment?

Can You Appeal a Default Judgement?

Do I Need a Debt Collection Defense Attorney?

Do I Need a Payday Loans Lawyer?

Do student loans go away after 7 years? — Student Loan Debt Guide

Am I Responsible for My Spouses Medical Debt?

Should I Marry Someone With Debt?

Can a Debt Collector Leave a Voicemail?

How Does Debt Assignment Work?

What Happens If a Defendant Does Not Pay a Judgment?

How Does Debt Assignment Work?

Can You Serve Someone with a Collections Lawsuit at Their Work?

What Is a Warrant in Debt?

How Many Times Can a Judgment be Renewed in Oklahoma?

Can an Eviction Be Reversed?

Does Debt Consolidation Have Risks?

What Happens If You Avoid Getting Served Court Papers?

Does Student Debt Die With You?

Can Debt Collectors Call You at Work in Texas?

How Much Do You Have to Be in Debt to File for Chapter 7?

What Is the Statute of Limitations on Debt in Washington?

How Long Does a Judgment Last?

Can Private Disability Payments Be Garnished?

Can Debt Collectors Call From Local Numbers?

Does the Fair Credit Reporting Act Work in Florida?

The Truth: Should You Never Pay a Debt Collection Agency?

Should You Communicate with a Debt Collector in Writing or by Telephone?

Do I Need a Debt Negotiator?

What Happens After a Motion for Default Is Filed?

Can a Process Server Leave a Summons Taped to My Door?

Learn More With These Additional Resources:

Need help managing your finances? Check out these resources.

How to Make a Debt Validation Letter - The Ultimate Guide

How to Make a Motion to Compel Arbitration Without an Attorney

How to Stop Wage Garnishment — Everything You Need to Know

How to File an FDCPA Complaint Against Your Debt Collector (Ultimate Guide)

Defending Yourself in Court Against a Debt Collector

Tips on you can to file an FDCPA lawsuit against a debt collection agency

Advice on how to answer a summons for debt collection.

Effective strategies for how to get back on track after a debt lawsuit

New Hampshire Statute of Limitations on Debt

Sample Cease and Desist Letter Against Debt Collectors

The Ultimate Guide to Responding to a Debt Collection Lawsuit in Utah

West Virginia Statute of Limitations on Debt

What debt collectors cannot do — FDCPA explained

Defending Yourself in Court Against Debt Collector

How to Liquidate Debt

Arkansas Statute of Limitations on Debt

Youre Drowning in Debt — Heres How to Swim

Help! Im Being Sued by My Debt Collector

How to Make a Motion to Vacate Judgment

How to Answer Summons for Debt Collection in Vermont

North Dakota Statute of Limitations on Debt

ClearPoint Debt Management Review

Indiana Statute of Limitations on Debt

Oregon Eviction Laws - What They Say

CuraDebt Debt Settlement Review

How to Write a Re-Aging Debt Letter

How to Appear in Court by Phone

How to Use the Doctrine of Unclean Hands

Debt Consolidation in Eugene, Oregon

Summoned to Court for Medical Bills? What to Do Next

How to Make a Debt Settlement Agreement

Received a 3-Day Eviction Notice? Heres What to Do

How to Answer a Lawsuit for Debt Collection

Tips for Leaving the Country With Unpaid Credit Card Debt

Kansas Statute of Limitations on Debt Collection

How to File in Small Claims Court in Iowa

How to File a Civil Answer in Kings County Supreme Court

Roseland Associates Debt Consolidation Review

How to Stop a Garnishment

Debt Eraser Review

Do Debt Collectors Ever Give Up?

Can They Garnish Your Wages for Credit Card Debt?

How Often Do Credit Card Companies Sue for Non-Payment?

How Long Does a Judgement Last?

​​How Long Before a Creditor Can Garnish Wages?

How to Beat a Bill Collector in Court