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Private Student Loan Settlements

Private lenders can offer settlements and other accommodations for defaulted private student loans. Lenders may have more flexibility with loans that have not been securitized but are still held on the lender’s books.

As with federal education loans, lenders rarely settle private student loans for less than the principal balance of the loan. A good starting point is to offer to pay the principal balance plus half of the accrued but unpaid interest.

It is best if the borrower negotiates directly with the lender, instead of using an intermediary. Some lenders are less accommodating if they are approached by an attorney negotiating on behalf of the borrower. However, the borrower should still seek the advice of an attorney and have the attorney review the final settlement agreement before signing it.

Beware of private firms offering to settle defaulted federal education loans for a fee. Some such firms prey on borrowers who are desperate for financial relief. Borrowers can pursue a settlement and alternate repayment plans through the collection agency, the holder of the loan or the U.S. Department of Education’s Default Resolution Group on their own.

Similar issues arise with private firms offering to consolidate federal education loans for a fee. These firms are charging a fee for something that is provided by the federal government for free. Borrowers can consolidate federal education loans on their own for free, by visiting They can do this even if they have previously consolidated their loans. (Since July 1, 2010, lenders in the Federal Family Education Loan Program can no longer make federal consolidation loans, but borrowers can still consolidate their loans into the Direct Loan program. Once the loans are in the Direct Loan program the borrower can choose to repay them in the income-based repayment plan.)

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In order to qualify for private student loan refinancing, lenders require a strong credit score with proof of income and employment history. In some cases a cosigner may be required. Also, if you have adverse credit history, including a prior student loan default*, you may not be eligible. * Default = 270 days late/missed payment on a federal loan and typically 90 days late/missed payment on a private loan(contact your lender for exact definition of default).

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