A year ago, Mark Kantrowitz of FinAid.org helped me answer a reader’s question about settling federal student loan debt. I was surprised the option was even available, given how many powers the government has to pursue this debt. (There’s no statute of limitations, the debt is tough to erase in bankruptcy and Uncle Sam can easily garnish your wages, seize your tax returns and even take part of your Social Security checks in his efforts to get paid back.)
But settlements of federal student loan debt do happen, and Mark has compiled what he knows about them on a new page on his site (click HERE to get there). The short version: you’re not going to settle for pennies on the dollar, as you can with old credit card debts. And you’ll want to consider the government’s new income-based payment option first. But if you have a reasonable lump sum to offer, you could have some success if you can pay off the principal plus half of the accrued but unpaid interest, or 90% of the combined principal and interest owed.
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