How to Settle Student Loan Debt. – Jessica

“Dear Steve,

Didn’t learn how to be responsible with my money until it was too late. I was approved and took 19,000 in a student loan which has since defaulted and went into collections. I have previously filed for bankruptcy but this particular loan stayed on. I want to try to settle, but due to the bankrupcty, I cannot get approved for a loan. My only collateral is a $5,000 car that I own, but no one will approve me for 12,500 that I need to settle out. This loan accrues about 160+ in interest monthly and it’s only going to spiral out of control. I can try to make $250 monthly payments, but it is still a negative skid mark that prevents me from things I want (ie: an approval for an apartment or loan).

How can I settle if I am unable to get money to settle with? OR, how do I clear up my situation without paying 300 a month for the next 30 years?


Dear Jessica,

The student loans will absolutely survive a bankruptcy. But the good news is that in some situations people have been able to reach settlements with some student loan lenders.

What makes this especially tough is the student loan lender has a significant amount of power to recover the full loan and then some.

The can:

  • administratively garnish your wages;
  • intercept tax refunds;
  • sue you; and,
  • increase your balance with late fees and penalties.

Your best shot to settle student loan debt is going to be if you have a lump sum of cash on hand now to offer as payment in full. Generally you’d need about 80% of the total balance due. Maybe you have a family member that might help you out, otherwise look at this debt consolidation loan option as a way to get your hands on the necessary cash.

So do you already have a settlement offer on hand to accept? It’s not clear if your lender has already agreed to a settlement or not.

See also  How Can I Get Rid of My Student Loans if I Become a Teacher?

Just because you filed bankruptcy doesn’t mean you can’t get your credit back into good shape rather quickly. Just follow this guide to turn your bad credit into good credit.

Please post your responses and follow-up messages to me on this in the comments section below.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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2 thoughts on “How to Settle Student Loan Debt. – Jessica”

  1. The collections agency has tried to settle with me, but I cannot come up with $13,000 or so to settle with. I have no family to borrow from and both commercial banks and the debt consolidation loan you suggested decline me. I understand that my credit isn’t great and that filing bankruptcy wouldn’t take away the negative account. I also know it takes a while to improve my score after filing. I’m just not sure what other options I have if the ones I’ve tried yeilded no results.

    • If you make 9-12 on-time payments they should report your loan as current again.

      Do you owe any monthly payments on any other debts or is it just this one?

      If so your only other option is to let the other debts go and/or file bankruptcy to make room in your budget for the student loan payments. In the sale of prioritized debt it goes IRS, Child Support, Student Loans, Secured Debt, Unsecured Debt.



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