If you are struggling with federal student loans, a settlement may be a good option. It can be difficult, however, negotiation skills are the key to this type of deal.  Federal student loan settlements involve a reduction in overall payment to satisfy in full the student loan. A settlement is normally possible if the client is able to pay in a lump sum.  These settlements, referred to as compromises, are not the first option in collection negotiation, but it becomes a viable option after exhausting other negotiation options to pay off those hefty student loans.


It is important to note that federal student loan settlements are not new payment plans; a settlement of your federal student loans involves the offering of a lump sum payment to be received by the United States Department of Education within a single fiscal year, which runs from October 1 through September 30.

Bruce Mesnekoff states that if you have the wherewithal, you should consider speaking with your servicer to negotiate discounts for paying off your loan(s) in full. “It will not only save you money up front, but also save you years of interest.”

Settlement offers are typically paid within 90 days of the date of the settlement offer, as per request of the US Department of Education. Defaulted borrowers in some instances are allowed to pay part of their settlement amount in monthly payments; however these monthly installments are still generally paid within the same fiscal year.

There are three types of settlement options offered by the US Department of Education which include: standard compromises, nonstandard compromises, and discretionary compromises.

  • Standard compromises, you are only either paying the current principal and interest, you pay at least the current principal and half the interest, or you pay at least 90% of the current principal and interest balance.
  • Nonstandard compromises are rare and are not commonly offered to student loan borrowers unless they have the approval of the US Department of Education.
  • Discretionary compromises involve payments that are less than the standard compromise amount. Discretionary compromises do however; require prior approval of the Department of Education. This means that the collection agency cannot agree unless they received some supporting documents.

To pay for a federal student loan settlement, you will have to pay by certified funds or by credit card. Collection agencies do not accept personal checks. Certified funds include money orders, certified personal checks, or cashier’s checks. As stated previously, settlement offers are typically required to be paid 90 days after the date of approval. Payments made after the 90 day deadline require approval from the US Department of Education.