How to Student Loan Settlement in 2023

Student Loan Settlement

Student Loan Settlement

Consider a compromise or settlement, especially if your lump-sum offer is large. Negotiating this type of agreement can be challenging. read more to know about “student loan settlement”.

Settlements for federal student loans are not easy to obtain, but they are sometimes possible. The Department of Education has the power to settle or compromise FFEL and Perkins Loans of all amounts, and suspend or end collection of these loans. Negotiating a “good deal” can be challenging. The Department of Education gives only limited information on what it is likely to accept. The schools may also be able to write off small Perkins Loan Balances.

Direct Loan Settlements

Student Loan Settlement

The Department doesn’t provide much information on compromises and settlements. The Department has stated that there are standard compromises, discretionary compromises, and nonstandard ones.

The Department has issued the following guidelines on how to compromise Direct Loans. All of these are standard compromises, except the discretionary compromises.


Type of CompromiseBorrower PaysAccount Eligibility
Waiver of FeesPrincipal and InterestAll Debts
50% Interest + FeesAll principal and 50% interestAll debts
10% P&I90% P&IAll debts
DiscretionaryAll debts

In its manual for Private Collection Agencies from 2009 (see Chapter 7), the Department discusses also general guidelines on compromises. The most recent version of the manual for government-private collection agencies is from 2009. However, NCLC obtained a redacted, more recent version in May 2016 through a FOIA Request. The manuals also include basic guidelines and minimum compromise amounts.

Student Loan Settlement

Settlements by Guaranty Agency

Standardized Compromises and Write-Offs Procedures are available from the Department for use by guarantee agencies. These procedures are used for negotiating agreements that allow guaranty companies and borrowers to accept less than the full amount of payment as a full liquidation.


The collection costs may be waived.

You can waive 30% of the principal and interest. If a guarantee agency compromises more than 30% of principal and interest, it cannot waive its right to collect any remaining amount.

Warning: These agreements only stop the collection activities of guaranty agencies, but you still owe that debt. Negotiate harder to try and get the Department to cancel the debt. Guaranty agencies can accept settlements but are not obliged to.

Tax Consequences

If you receive a settlement for your student loans, there may be tax implications. For more information, it is best to speak with a tax expert.

If you decide to settle the matter on your own, be sure to confirm the agreement in writing. This will ensure that the loan has been paid in full.

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