How Can I Settle My Federal Student Loan for Less? – Ella

“Dear Steve,

I owe about $55K in student loan debt. I am interested in doing a lump sum pay off at a discounted rate. When I spoke to my lender, Total Higher Education/Great Lakes, they said this was impossible since the loan was through the government. After reading a bit more, it seems that a discounted lump sum payment may actually be permissible. Can you please given me some advice?

Thanks in advance for your assistance.


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Dear Ella,

I don’t think this is a matter of being permissible. Any person or entity can certainly decide to accept less than the full balance owed for any debt as a full satisfaction. If you are not insolvent after settling then the amount can be taxable and you may owe income tax on the forgiven debt.

Settling debt is a business decision. And lenders with unsecured debt owed are more likely to settle a debt because they don’t have any collateral to go after and some cash in hand now is better than little or nothing in the future. But unsecured debt can be discharged in bankruptcy and that would end the repayment obligation entirely. So in that situation settlement is a real consideration.

But when it comes to owing federal student loans you basically have no leverage. If you don’t pay they can’t be easily discharged in bankruptcy, your tax returns can be intercepted, you can be sued, your wages can be garnished and as far as I am aware a federal student loan debt has no statute of limitations.

While you can make an offer to settle there just isn’t any reason I can see why they would accept it. On the other hand, private student lenders are more willing to settle on delinquent loans these days.

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

Damon Day - Pro Debt Coach

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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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