Can You Settle a HEAL Loan? Here’s What to Expect

You can settle a HEAL loan — but it’s rare.

HEAL loans, short for Health Education Assistance Loans, haven’t been issued since 1998. But many doctors, dentists, and other health professionals are still repaying them decades later. If your loan has gone into default, settlement may be possible, though the government applies stricter rules than with other types of debt.

Related: How to Negotiate Student Loan Payoff

HEAL loan settlements follow federal debt rules under the Federal Claims Collection Standards (FCCS), so they don’t look like typical consumer debt deals. In practice:

• ED may approve smaller compromises. DOJ must sign off on larger ones or any case already in litigation.

• Principal reductions are uncommon. Past ED policy guidance even aimed for at least 115% of the claim at default once interest and fees were added. That benchmark isn’t a binding rule, but it shows how limited discounts usually are.

• Deep percentage discounts (the 40–60% you might see with private loans) are exceedingly rare on HEAL debts.

HEAL loan settlements are only approved when the Department of Education or Department of Justice decides collecting the full balance isn’t realistic. Under the FCCS, that usually means one of three conditions:

1. Serious Financial Hardship

Examples include:

• Relying on Social Security or disability benefits.

• Having no significant assets such as home equity, savings or retirement funds.

• Medical conditions or disabilities that limit earning capacity.

• Advanced age with limited future income prospects.

These factors don’t guarantee settlement but show the type of hardship agencies review.

2. Limited Ability to Collect

Settlement may also be considered when collection is doubtful, such as:

• Living abroad, where U.S. enforcement is limited.

• Documentation gaps that weaken the government’s case.

• Court judgments unlikely to recover money due to lack of wages or property.

3. Cost of Collection vs. Recovery

Agencies may compromise when pursuing the debt costs more than it’s worth, for example:

• Garnishment or offsets would produce very little over time compared with a lump sum.

• Litigation and monitoring would be costly and slow relative to the borrower’s offer.

Related: HEAL Loan Collections: How it Works

Pursuing a HEAL loan settlement is a formal process. You must submit a written offer, provide financial records, and wait for the Department of Education — or sometimes the Department of Justice — to decide.

• Submitting an offer. Proposals go to the Department of Education’s Default Resolution Group, usually through an attorney, and must include the amount you’re offering.

• Providing documentation. Tax returns, pay stubs, bank statements, property records and monthly expenses are required to show why full repayment isn’t realistic.

• Agency review. Education can approve balances of $100,000 or less. Larger debts or cases in litigation are referred to the Department of Justice.

• Agreement terms. Settlements, if approved, almost always require a lump sum or very short repayment period.

• Credit reporting. After payment, the loan is reported as “paid in full for less than the full balance,” which remains on your credit report.

Settling a HEAL loan rarely works in a borrower’s favor. The main disadvantages include:

• Up-front cash required. Settlements almost always demand a lump sum or very short repayment period. Without cash on hand, approval is unlikely.

• Limited savings. HEAL settlements seldom reduce the principal. At best, interest or fees may be waived. Past guidance even suggested aiming for 115% of the claim at default — a benchmark that shows how limited discounts usually are.

• Negative credit reporting. The account will typically be reported as “paid in full for less than the full balance,” which can hurt future borrowing.

• No program benefits. A settlement does not restore eligibility for IDR, forgiveness, or Public Service Loan Forgiveness. Only consolidation reopens those options.

Because HEAL settlements are so restrictive, other options usually make more sense:

• Direct Loan Consolidation. Converts the HEAL loan into a new Direct Consolidation Loan, curing the default. The new loan becomes eligible for IDR (including SAVE) and PSLF. No lump sum is required — just ongoing payments.

• Repayment agreements. ED may accept a voluntary payment plan tied to your income and expenses. This can stop garnishment or offsets, though the default mark remains on your credit until resolved.

• Rehabilitation (limited). While HEAL loans lack a formal rehab program, ED can sometimes allow a payment arrangement that restores the loan to good standing. Availability is limited, and consolidation is usually simpler.

• Discharge. HEAL loans can be discharged in cases of death or total and permanent disability. Bankruptcy is also possible under the stricter “unconscionability” standard, but approval is extremely rare.

Related:

• How to Get HEAL Loans Out of Default

• Can You File Bankruptcy on HEAL Loans