How Does Federal Student Loan Settlement Work?

If you are interested in settling your defaulted federal student loan, it is important to understand that a settlement results in a lump sum payment to satisfy the total amount you owe in full. Typically, the U.S. Department of Education will require you to pay the full settlement amount within 90 days from the date of the settlement offer. In certain cases, however, you may be able to pay the settlement amount in installments that result in the full settlement amount being paid within the same fiscal year.

Most settlement negotiations occur with the private collection agencies used by the federal government to collect student loans. These collection agents have the authority to accept three basic types of settlements without obtaining prior approval from the U.S. Department of Education:

  • Agreement to waive all collection charges
  • Agreement to pay the current principal balance plus half of the accrued but unpaid interest
  • Agreement to pay at least 90% of the current principal and interest balance

An offer that is lower than any of the three standard settlement options requires approval by the U.S. Department of Education.

There are many other factors and options to consider when you have a defaulted student loan. It is important to seek the advice of counsel to ensure that you are making the most advantageous decisions for handling your student loan debt. Let us help.

Please keep in mind that every matter is different. If you have questions about your student loan debt and you would like to schedule a no-cost consultation to discuss your options, please contact our office by completing our website form or calling us at (954) 932-5377.


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