Is It Possible to Settle Student Loan Debt?

Published June 2021
Student Loan Debt written on a chalkboard

When you have credit card debt and payments to make on your home and car, paying off your student debt may not seem like a top priority. However, unpaid student debt can have serious negative consequences on your credit score and financial future.

Key Points:

  • Settling student debt is not as easy as settling consumer debt.
  • You will probably only be able to settle a student loan if it is in default.
  • It pays to hire a specialist to negotiate your settlement deal.

What can you do about student debt? Can you settle it? The answer is “it depends.” You can, however, forget about treating most student debt settlement the same way you handle consumer debt settlement.


You can only settle a student loan if it’s in default or near it.

Almost no creditors will settle a student loan that is not in default or near it. Even if your reasons for requesting settlement are legitimate, your creditors are under no obligation to negotiate a settlement with you.

When Can You Settle a Student Loan?

You can only expect to strike a deal with your loan holder if:

  • Your loan is in default or about to be in default
  • You have the money to pay off the settlement in a lump sum
  • Settlement is a last-resort solution short of court judgment or bankruptcy
  • Your loan holder can expect to recover more money by settling than by pursuing full repayment
From the perspective of debt settlement, there is a marked difference between federal student loans and private student loans. The former go into default 270 days after delinquency occurs. Private student loans can go into default after 120 days of delinquency.

Settlement of Federal Student Loans

Federal student debt settlement is rare. The debt holders involved with such loans have their hands tied by the federal government. They cannot afford to be creative when attempting to recover funds. Additionally, they can garnish wages and tax refunds to recover a debt.

In some extreme cases, you may be able to settle your federal student loan.

  • If your loan holder finds that it can’t recover money from you through wage garnishment or other such means, it may be willing to settle. Some people do not earn wages and don’t pay taxes, so the government can’t recover any money from them.
  • If you defaulted on your loan before, used rehabilitation to clear your credit history, and defaulted on it again, your loan holder may consider that it has run out of other options and give debt settlement a chance.
  • If you can make a solid case that you can’t afford to repay your debt, you may be able to get debt relief via settlement. You need to submit pay stubs, tax returns, and bills to build a credible case.

Settlement of Private Student Loans

Private student loan providers have more freedom in deciding how to recover the money they have loaned out. Consequently, they may be more willing to settle. Also, they can’t garnish your wages or use other tools federal lenders can use to recover assets.

If you can prove to your lender that it won’t be able to recover more money from you in the future, there’s a decent chance that it might want to settle. If you can make a lump-sum payment, your chances of reaching a deal increase significantly.

Some private student loan holders may try to sue you to obtain the right to garnish your wages. Strong legal representation may dissuade them from this course of action.

Bear in mind that while private lenders may be more willing to settle, nothing guarantees that they will. It is entirely up to them whether they grant you this form of debt relief.

How to Negotiate a Student Debt Settlement

To negotiate a student debt settlement, you basically have three routes to consider:

    1. The DIY approach: Reach out to your creditors and let them know you are open to settlement. Allow them to make an offer.
    2. Lawyer up: Hire a specialized student loan lawyer to handle the negotiation for you.
    3. Professional debt settlement: If you have a private student loan, which is considered unsecured debt, get in touch with a debt settlement company and let it handle the process. Contact a ClearOne Certified Debt Specialist at 866-481-1597 today to learn what your debt relief options are.


Experienced negotiators may get you a better settlement deal.

How Much Can You Save through a Student Loan Settlement?

Unlike consumer debt settlement, a student loan settlement will not save you much. Federal student loan holders can give you limited concessions only. A typical federal student loan settlement may allow these options:

  • Pay the remaining principal and interest without any collection charges
  • Pay the principal and half of the unpaid interest that has accrued since the loan went into default
  • Pay 90% of the current balance of principal and interest

As far as private loans go, some loan holders may settle for less than 50% of your principal. Again, there are no guarantees in this regard. Also, remember that you will owe income tax on any forgiven debt.

Another Option: Settle Credit Card Debt Instead

If you are having a problem with paying your student loan and credit card debt, you may find that it is easier to negotiate your credit card debt than your student loan.

For most people, credit card debt is the most expensive type of debt to carry. Getting out of credit card debt may enable you to have enough breathing room in your budget to make student loan payments comfortably.

Contact a ClearOne Advantage Certified Debt Specialist at 866-481-1597 to learn what your credit card relief options are and get a free savings estimate today.

Savings Estimate Green Overlay

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Topics: Financial Education