Private Student Loan Debt Settlement: How to Get It

#1 Student loan lawyer

Updated on May 26, 2024

Your lender might accept a settlement offer for less than you owe. But you’ll first need to fall behind on your monthly payments. Then, you’ll need to present a settlement offer worth accepting.

I’ve negotiated hundreds of private student loan settlements over the past decade. Here are the three most common types of settlement agreements:

  • Lump-sum payment by the end of the month.

  • 10% of the settlement amount paid right away and the rest over a few months.

  • No money down and a payment plan over several months or a few years.

The type of deal you may be able to negotiate depends on the private lender you’re dealing with, your payment history, credit score, financial situation, and other factors.

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What Is a Private Student Loan Debt Settlement?

A private student loan debt settlement is when you reach an agreement with your loan holder or collection agency to pay less than you owe.

You might be able to settle your private student loans if:

  • Your loans are in default.

  • Your loans have been sent to collections.

  • You have a lump-sum payment to settle your loan balance.

The amount of money you can save, and the settlement options you’ll get will vary by lender. In my years doing this, I’ve seen only one company refuse to settle: My Rich Uncle. Every other private student loan lender — Navient, Sallie Mae, Discover, etc. — has been willing to work out a new payment arrangement.

Related: My Student Loan Is In Collections. What Can I Do?

How Private and Federal Student Loans Are Different

While exploring private student loan debt settlement options, it’s crucial to understand how they differ from federal student loan solutions. The following table compares key aspects of both, highlighting the unique challenges and opportunities in settling private student loans.

Private vs Federal Loans


Federal Student Loans

Private Student Loans

1. Loan Forgiveness

Various programs available (e.g., Public Service Loan Forgiveness)

Rarely offered

2. Repayment Plans

Income-driven repayment plans available

Typically fixed or standard repayment plans

3. Debt Settlement

Limited scope for settlement; often tied to specific circumstances

More flexibility in settlement negotiations

4. Default Consequences

Options for rehabilitation and consolidation

Often leads to accelerated repayment demands

5. Interest Rates

Fixed rates set by the government

Variable rates, often higher

6. Negotiation Leverage

Limited; governed by federal guidelines

Higher; depends on lender's policies

7. Tax Implications

Forgiveness under specific programs might be tax-exempt

Settled debt often taxed as income

8. Support and Resources

Direct support from the Department of Education and affiliated servicers

Direct support from the Department of Education and affiliated servicers

Typical Private Student Loan Settlements

The type of settlement you’ll be able to negotiate depends on several factors, such as

  • How much you owe.

  • The payment history.

  • When you borrowed the loan.

Many companies will also pull your credit report to see whether you’re paying your mortgage, car note, credit cards, etc. If you’re on top of all your other bills except your student loans, they’ll usually be less willing to settle.

2023 Private Student Loan Settlement Amount Examples


Borrower Profile

Balance Owed

Amount Owed at Settlement

Settlement Offer (Link)

Settlement Type

1. Sallie Mae

Unemployed; recent college graduate; cosigner



$4500 down; $26,900 paid in 30 days w/credit card

2. Navient

Single-mom; good credit score; cosigner



Lump-sum payment

3. Allied Interstate

Medical assistant; cosigner; ok credit score



Lump-sum payment

4. Navient

Self-Employed; good credit score



Lump-sum payment

Disclaimer: This table includes real settlement offers we successfully negotiated with various lenders in 2023. These results are specific to individual cases and are not guaranteed for every situation. Each settlement is unique and depends on various factors, such as the student loan borrower’s financial status, the loan servicer’s policies, and the specific circumstances of the debt.

How to Settle Defaulted Private Student Loans

I’ve negotiated settlements for defaulted loans with all the major private lenders. Here’s how to settle your loans:

1. Review Your Personal Finances

Before you start settlement negotiations, you want to know:

  • How much you can pay in a lump sum

  • How much you can pay in monthly installments

You also want to see how much you can borrow from your 401k, retirement accounts, home equity, and so on. And whether your cosigner, family, or friends will chip in.

2. Gather Documenation

One of the first questions you’ll be asked when trying to settle your private loans is, “What’s your financial hardship?” Over the years, I’ve explained that my client had a hardship because:

  • They were laid off during Covid.

  • They’re a single parent with no support from the other parent.

  • They suffer mental or physical disabilities that impact their ability to work.

  • They’re retired and living on a fixed income.

  • They went to a sham-for-profit school.

To support those claims, I’ll usually have my client gather their paystubs, tax returns, bank statements, and copies of their bills.

This information isn’t always needed, but it helps to have it at your fingertips in case you’re asked for proof.

3. Contact the Lender or Debt Collector

I start settlement negotiations by calling the lender or collection agency and asking for my client’s repayment options. The representative will usually ask one of two questions:

  • Can you pay the loan balance in full?

  • What’s your intent with the debt?

Your answer to the first question is likely no. If you could afford to pay the balance, you wouldn’t have fallen behind on your student loan payments and added the delinquency and default status to your credit history.

The second question is open-ended. It leaves you room to say a lot of things. I typically respond to it with a question: What repayment options do you have?

This move gives us a starting point for negotiating a student loan payoff. The representative will typically share a settlement offer. This will let you accept the offer or counter it.

4. Ask For a Paid-In-Full Statement

Since this is outside your regular payment plan, you’ll need to handle a settlement carefully. Get an offer in writing and have a lawyer review the terms with you. Once you’ve paid your debt in full, ask for a “paid-in-full” statement as part of your terms. Otherwise, you may still be on the hook for some of your outstanding loan balance.

Keep your paid-in-full statement handy. That way, you’ll be protected if lenders or debt collectors try to ask for money from you later on. You might also need it to ask for an update on your credit report or when you file your taxes.

If you receive a 1099-C from the lender after you settle your debt, you might have to pay taxes on the amount of debt the lender canceled. Canceled debt is often considered income.

Related: Taxes on Settled Debt

Should You Accept a Private Student Loan Settlement Offer

You should accept a student loan settlement if you can afford to pay the settlement offer without putting yourself in further financial hardship. There are drawbacks to settling:

  • The late payments won’t be removed from your credit history.

  • Your credit report will show you paid less than you owed.

  • You may owe taxes on the difference between your loan balance and settlement amount.

In my opinion, those consequences are overblown. The relief you’ll get from being free from those loans often far outweighs the added financial costs from taxes. A good tax professional can limit the tax hit. And I’d argue that most Americans care too much about their credit score and far too little about the value of discounted debt relief.

We tell our clients, “Bad credit is temporary. But debt relief is forever.”

How temporary? We recently surveyed our clients. Nearly 80% reported that their credit returned to above 700 within 6 months of paying the settlement in full.

The only reason I can think of not to accept a settlement is the statute of limitations has run out. But that doesn’t happen as much as people want to believe.

Related: How to Get Rid of Private Student Loans

Help Settling Private Student Loans

Settling private student loans can be complex, but there are several resources available to help you navigate it.

  1. Self-Advocacy: You can negotiate a settlement yourself by gathering necessary documentation that proves your financial hardship, such as pay stubs, tax returns, proof of recurring expenses, medical bills, childcare expenses, and rent or mortgage payments. You can then present this evidence to your lender and negotiate a settlement.

  2. Student Loan Lawyers: Student loan lawyers specialize in federal and private student loan-related legal issues. They can help you navigate various repayment options, negotiate with lenders, and offer legal advice about your rights and options if you end up in court. My team and I can help negotiate a settlement for your private loans. You can also find other reputable student debt lawyers through online directories or by contacting state and local bar associations.

  3. Credit Counseling Organizations: These organizations can provide free, qualified help. They can help you understand your options for getting out of default, such as loan rehabilitation or consolidation, and represent you in court if you are facing wage garnishment or other legal actions

  4. National Organizations: several national organizations offer student loan help. These include the American Consumer Credit Counseling (ACCC), The Institute of Student Loan Advisors (TISLA), the National Association of Consumer Advocates (NACA), the National Consumer Law Center (NCLC), and National Foundation for Credit Counseling (NFCC). These organizations specialize in various areas such as loan consolidation, loan cancellation, applying for deferment or forbearance, choosing a repayment plan, loan forgiveness, default, repayment plan options, servicer disputes, and finding an attorney

Bottom Line

Settling private student loans is a tricky business, and there are many obstacles along the way that can trip you up and keep you from achieving a successful settlement.

With so much money on the line, it’s crucial to seek legal advice and enlist the help of someone with a proven track record in negotiating private student loan settlements.

If you’re ready to explore your settlement options and find the best way to escape your private student loan debt without causing significant damage to your credit or that of your cosigner, book a call with us today. Together, we can tackle this challenge and help you regain control of your financial future.

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