Anyone with a student loan is eligible to voluntarily pay a lump sum payoff to get rid of a chunk of their student debt — or eliminate it altogether! There should never be a penalty for paying off your student loans early with a voluntary lump sum payoff.
Can you negotiate a payoff on a student loan? Yes, you can negotiate a payoff on your student loan in certain circumstances, sometimes called a student loan settlement.
To be eligible for a lump sum settlement, where you pay less than the total amount to get rid of the debt, you must first default on your student loans. This will negatively impact your credit. Only then can you (politely) ask to negotiate a settlement.
(Defaulting means a certain amount of time designated in your promissory note has passed where you haven’t paid a monthly student loan payment.)
Defaulted federal loans — namely Direct Loans, FFEL, and Perkins Loans — are possible to settle after 270 days in default. However, due to the many options available to the government for collecting on defaulted loans, they won’t accept offers below 85% of the loan balance.
On the other hand, private lenders are often more likely to settle. The option is typically available after 4 months, or even less, in default. These private student loan lenders will often settle for a lower percentage of the balance than a federal loan.
A private lender may negotiate a lump sum settlement with you if:
You can prove you have few assets and little income
You are represented by an expert, like a student loan lawyer
Does the student loan payoff amount include interest? No, a student loan payoff does not include future interest. However, a student loan payoff will include past interest that’s already accrued.