App version: 0.1.0

Negotiating Student Loan Payoff: How It Works

Negotiating Student Loan Payoff: How to Do It
Rebecca Safier
Rebecca SafierUpdated August 16, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Falling behind on student loan payments can lead to a number of negative consequences, including frequent calls from debt collectors and damage to your credit. If you’ve defaulted on your student loans, it may be possible to negotiate a student loan settlement. While a settlement could be a time-consuming and costly process, if you’re able to settle your debt, it might be worth it. Here’s what you need to know about negotiating student loan payoff.

Is It Possible to Negotiate Student Loan Payoff?

The answer to the question of can you negotiate a student loan payoff? is yes. But approval is granted on a case-by-case basis. You’ll need to speak directly with a lender or debt collector, or hire a lawyer or debt settlement company to negotiate on your behalf. Lenders are only open to debt settlement if your student loans are in default. Federal loans are considered to be in default after 270 days of missed payments. Private student loan rules vary, but most private loans go into default after 90 or 120 days of non-payment. If the lender agrees to a student loan settlement, you may be able to pay back less than the amount you owe. The bill could still be considerable, however, and you may need to make a lump-sum payment upfront.  If a student loan settlement is reached, the lender will mark your account as “paid in full.” While the default will be removed from your credit report, the settlement will still appear on your report and affect your credit for years to come. 

How to Settle Your Student Loans

If you’re wondering, how long does it take to pay off student loans?, the process generally takes about two decades. The average student loan debt is more than $37,000, according to, which could mean that the average student loan payment may be difficult for some borrowers to make. And that might result in negotiating student loan payoff.However, lenders may not agree to settle student loans unless you’ve exhausted other options for hardship assistance, such as income-driven repayment or loan rehabilitation. If your loans are in default, here are some steps you can take to pursue settlement. This could help you when it comes to paying off student loans fast.

Know Your Options

Before trying to negotiate a student loan payoff, take some time to research your options, especially the difference between settling federal and private student loans. Both types of settlements are possible, but federal student loan settlement may be rare. That’s because the government offers a variety of plans to get your student loans back into active status, including student loan rehabilitation and consolidation. What’s more, the government has wide-reaching powers of collections for defaulted student loans. If you haven’t been making payments, the government can garnish your wages, tax refund, and even Social Security benefits. If the debt collector is willing to negotiate a settlement, however, you might get the following three offers: 
  • Pay the full amount of your remaining principal balance and interest charges with the collections charges waived
  • Pay the full amount of the remaining principal and half the interest charges 
  • Pay 90% of your current balance and interest charges 
You may be able to negotiate a lower amount, but the Department of Education will have to approve your request. Private lenders, on the other hand, may be more flexible when it comes to negotiating a settlement, since they can’t garnish your wages or tax refunds. Some might accept a lump-sum payment of 35% to 75% of your remaining balance. The terms of your deal will depend on your remaining balance, collections charges and fees, and how long it’s been since you paid your loans. 

Let the Lender Make the Initial Offer

Once you have a sense of your debt settlement options, it’s time to reach out to the lender or collections agency asking about a lump-sum payment in exchange for closing the account. It’s a good idea to let the lender make the initial offer. That way, you can see what the they want you to pay and negotiate from there. If you can’t afford the amount requested, ask the lender to present other options. Find out if they will accept a lower amount or can arrange an affordable monthly payment plan. 

Provide Required Documentation 

To successfully negotiate student loan payoff, you’ll need to prove that you can’t afford to pay back the amount you owe. Documentation will act as proof of your financial hardship. Gather any supporting records you have, such as: 
  • Medical records that explain why you’re unable to work 
  • Pay stubs or tax returns 
  • Rent or mortgage statements 
  • Childcare expenses
  • Proof of other recurring expenses 
Any financial records that would support your claim that you can’t pay back your student loans in full could help as you try to negotiate a debt settlement. 

Ask for a Paid-In-Full Statement

When negotiating a settlement, you want to be 100% sure that your student loan account will be closed and you won’t be expected to make additional payments. Before you sign anything, make sure the lender agrees to provide a “paid-in-full” statement for your debt. Keep a copy of this statement on hand in case you get additional calls from debt collectors or the loan isn’t marked as closed on your credit report.It’s important to note that you may have to make one more payment on your loans after settling them in the form of a tax bill. If the lender sends you a 1099-C form, that means you’ll likely be liable for taxes on the amount of debt that the lender canceled when accepting a payment for a lower amount. 

Alternatives to a Student Loan Settlement

Student loan settlement is far from guaranteed. The process can be time-consuming and expensive, especially if you hire a student loan lawyer for help. Plus, a settled debt shows up on your credit report for seven years, acting as a red flag to future lenders. Before pursuing debt settlement, consider these alternative options for managing your student loans. 

Deferment or Forbearance

The government offers deferment and forbearance programs to postpone payments temporarily. Some private lenders also offer forbearance or deferment if you run into financial hardship. While interest may continue adding up, pausing payments could help you avoid default while you get back on your feet. 


There are a number of forgiveness and loan repayment assistance programs at both the national and state level that could wipe away all or part of your student loans. Explore these options for student loan forgiveness to see if you qualify. If you’re able to switch jobs, some companies also offer student loan assistance benefits, including employer student loan repayment

Income-Driven Repayment Plans

Federal student loans are eligible for income-driven repayment plans. While these plans help make loan payments more affordable for borrowers, extending the loan terms may result in accruing more interest over the life of the loan.President Joe Biden has announced the creation of the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. According to the White House, the SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.Starting next summer, borrowers on the SAVE Plan will have their payments on federal undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line).   


Refinancing student loans is another option. When it comes to how to refinance your student loans, basically, you exchange your current loans for a new one from a private lender. Make sure to compare student loan refinance rates from multiple lenders to see if you can qualify for a better rate than you have now. Refinancing also typically lets you restructure your debt with new terms and an adjusted monthly payment. It’s important to note, however, that there are disadvantages of refinancing student loans. Refinancing federal loans turns them private, meaning your new loan would no longer be eligible for federal repayment plans, forgiveness programs, or rehabilitation. It wouldn’t be a good idea to refinance federal loans if you rely on any of these protections or suspect you might need them in the future. 

Check Out Student Loan Refinancing Rates With Lantern

If you’re interested in refinancing your student loans, it’s smart to shop around for the best rates and terms. Lantern by SoFi can help simplify the process. By filling out one form, you’ll get offers from multiple lenders all at once. It’s fast and easy, and it won’t affect your credit score.

Frequently Asked Questions

Will settling student loans hurt your credit score?
How much money can you save with a student loan settlement?
How much does student loan settlement cost?
What is the best way to get rid of student loan debt?
What happens if you never pay your student loans?
Photo credit: iStock/LordHenriVoton

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
Share this article: