To my knowledge you cannot settle student loans that are not in default. However, I see that you are talking with your servicer not a collection agency.
Can you confirm that your loans are in default?
If not, the more details the better. Loan balances, types, income. If you are in the position to do a settlement you might be okay just getting the loans brought current (which doesn't have to be through payment) and switching to a more affordable plan.
they are in default and i'm dealing with the collection agency. wages are being garnished already and i believe that i've exhausted all other options, including rehab. i'm just trying to figure out if they're really being honest or just trying to get me to settle at 80ish percent of the loan. they claimed that the fed gov only allows them to offer amount as low as the amt that they offered me.
yes, i defaulted before and they even reminded me to make voluntary payments before it went into collections, but stupid me forgot. at least this payment isn't so bad. after doing the math, i'm actually better off accepting the deal than continuing the garnishment for even a year. thanks for the help.
If you are on your second default, you can have your student loans 'fixed,' but if you have the cash on hand to take their 80% settlement, I would seriously consider doing it. If I had that offer (and had the money to pull it off), I would definitely have taken it.
I was in my second default, and to get out of it, what I had to do was consolidate. When I initially contacted my guarantor, I asked about option of getting out of default a second time. The CSR said I could not rehab, and that my only option was to pay it down with voluntary payments. It turns out that's not entirely accurate (I mean, you can pay it down faster with voluntary payments to make it go away faster).
What you *can* do, if your loans are not already consolidated is apply for a loan consolidation through the Department of Ed.
You can do the whole submission (including permission to access your IRS files because you will automatically be put on the ICR payment plan) online. You also have to choose your servicer, so you might want to research them to pick one. I chose one that had a reputation of having easy to reach humans. When I did it, I had to supply the names, addresses, and phone numbers of two people who would serve as references as well. I've read that consolidation from default requires 3 voluntary payments, but I had not done that (I had made 2 payments when a CSR contacted me about consolidation to get out of default).
Since this is not a rehabilitation, any negative information and tradelines, etc will stay, but the account is considered paid, so those tradelines are subject to the FCRA rules (7 year exclusions and all). The new loan will be a new account, no old history, etc. Once the loan is disbursed, garnishment ceases (in fact, my paycheck was garnished 3 days before disbursement and the guarantor sent the money back to me). In addition - you get to keep all of the protections that come from federal student loans (deferment, forebearance, payment plans are back on the table).
So if you can't afford a lump 80% sum, you can probably consolidate. If you can afford to pay it off, I would do so, as what will happen with consolidation is that the interest & principle will be rolled into the new principle on the loan, and consolidation can come with (up to) an 18% fee. Mine wasn't that high, but I was warned. My ICR payment was 1/3 of my garnishment, so it definitely would have helped my finances (instead, I still pay the garnishment amount every month to pay it off early - I would not qualify for any kind of forgiveness program with my job/income).