How to Settle Private Student Loans You Can't Repay

One website sorts every student loan into two piles. Sign in to StudentAid.gov, the U.S. Department of Education's student aid site, and every loan in your account is federal. A student loan that isn't there is almost certainly private, because, in the Consumer Financial Protection Bureau's words, that system shows only your federal student loans, not your private student loans.

A private student loan is a loan for college costs made by a bank, credit union or other private lender instead of through the federal student aid program; federal law calls it a "private education loan" (15 U.S.C. § 1650(a)(8)). Private student loan settlement is an agreement in which whoever holds that loan accepts less than the full balance as payment in full.

The pile decides almost everything else: who can collect, how, for how long, and whether settling is even the right move. Student loans are one part of what households owe, as how much debt the average American carries shows, and this guide is about the private pile.

How can you tell if a student loan is federal or private?

A student loan is federal if it appears in your StudentAid.gov account and almost certainly private if it doesn't. A private loan is made by "a private organization such as a bank, credit union, or State-based or State-affiliated organization and is not issued by the U.S. Department of Education," according to the Education Department's Office of Inspector General.

Finding every private loan takes more digging, because there is "not a single website" that lists them, the CFPB notes. It points to your promissory note or disbursement notice, the servicer you pay, and your credit report.

Federal student loans

Made or backed by the U.S. Department of Education

• Listed in your StudentAid.gov account
• A Direct Loan defaults after 270 days without payment
• Wages can be garnished, up to 15% of disposable pay, without a court order
• No statute of limitations on collection

Private student loans

Made by banks, credit unions and other private lenders

• Not listed on StudentAid.gov
• Default is defined by your loan contract
• Wages generally can't be garnished without a court order
• Your state's statute of limitations applies

34 CFR 685.102; 20 U.S.C. §§ 1091a and 1095a; Consumer Financial Protection Bureau (March and August 2024).

A federal Direct Loan is in default after 270 days without a payment (34 CFR 685.102). Federal law then lets the Education Department or a guaranty agency garnish up to 15% of disposable pay without a court order (20 U.S.C. § 1095a) and sets no time limit on collecting (20 U.S.C. § 1091a), though on January 16, 2026 the Education Department announced a temporary delay of wage garnishment and Treasury Offset Program collections. Private loans have none of that machinery, and Felix negotiates private student loans, not federal ones.

Can you settle a private student loan for less than you owe?

You can settle a private student loan for less than you owe if whoever holds it agrees. The CFPB tells struggling borrowers that "you may be able to negotiate with your lender to set up a new repayment plan or otherwise settle your debt." For a private loan already with a collector, it says there are "no standard options for dealing with a collection agency on a private student loan, other than paying what is owed," but that "you may be able to negotiate or set up a payment plan."

Nobody has to say yes, and a lender's first tools keep a loan going rather than shrink it. SLM Corporation, the parent of Sallie Mae Bank, says in its 2025 annual report that hardship arrangements can include "extended grace periods, short-term hardship forbearances, temporary interest rate reductions, and, in some cases, permanent interest rate reductions." Those lower the payment. They don't lower the balance.

So if a smaller payment would get you back on track, ask about those first. If the balance itself can't be repaid, settlement is the tool, and it works much like settling a personal loan you can't repay: a holder weighing a smaller, certain payment against a longer, uncertain one, and a written agreement before any money moves.

When does a private student loan go into default and get charged off?

A private student loan goes into default when your loan contract says it does, and it's charged off, written off as a loss on the lender's books, on a schedule that varies by lender: 120 days past due at Sallie Mae and Citizens Bank and 212 days at Navient, according to their 2025 annual reports. A charged-off loan is still owed.

The CFPB says private loans "often go into default when you miss monthly payments," and that "depending on the terms of your loan, you can also default on a private student loan if you declare bankruptcy or default on another loan." One trigger is off-limits on newer loans: a cosigner's bankruptcy or death. For a loan made on or after November 20, 2018, the creditor "shall not declare a default or accelerate the debt against the student obligor on the sole basis of a bankruptcy or death of a cosigner," under 15 U.S.C. § 1650(g)(1).

Lender	Charge-off point in its 2025 Form 10-K
Sallie Mae Bank (SLM Corporation)	End of the month the loan reaches 120 days delinquent
Citizens Bank (Citizens Financial Group)	Generally in the month the account becomes 120 days past due
Navient	End of the month the loan is 212 days past due

• LenderSallie Mae Bank (SLM Corporation)

  Charge-off point in its 2025 Form 10-K

  End of the month the loan reaches 120 days delinquent

• LenderCitizens Bank (Citizens Financial Group)

  Charge-off point in its 2025 Form 10-K

  Generally in the month the account becomes 120 days past due

• LenderNavient

  Charge-off point in its 2025 Form 10-K

  End of the month the loan is 212 days past due

SLM Corporation, Citizens Financial Group and Navient Corporation, Forms 10-K for 2025 (filed February 2026).

1. Day 1

   A payment is missed

   Your loan contract decides when that becomes a default.

2. 30+ days

   Cosigner release drops out of reach

   Sallie Mae rules it out if the borrower was 30 or more days late in the past 12 months.

3. 120 days

   Sallie Mae and Citizens charge off

   Written off as a loss, and still owed.

4. After charge-off

   Sold or sent to collectors

   Sallie Mae sells a segment of defaulted loans right away and works the rest with collectors.

5. 212 days

   Navient charges off

   At the end of that month.

6. Until the state deadline

   A lawsuit is possible

   Without a court order, a private lender generally can't garnish wages.

SLM Corporation, Citizens Financial Group and Navient Corporation, 2025 Forms 10-K; Sallie Mae Smart Option terms (September 2026); CFPB (2024).

Who holds a defaulted private student loan, and who can settle it?

Only the company that owns your private student loan when you negotiate can agree to settle it, and after a default that may be the original lender, a debt buyer or a securitization trust, often with a servicer or collection agency in between. The CFPB calls the owner the noteholder, "the entity who owns your loan," and it isn't always the company that bills you.

Navient's 2025 annual report shows the split: Navient owns and manages $15.5 billion of private education loans, and MOHELA began servicing its loan portfolio in July 2024. Loans also change owners outright. Sallie Mae sells a segment of defaulted loans immediately after charge-off, and Discover, which stopped taking private student loan applications on February 1, 2024, says in its 2024 annual report that it completed the sale of its private student loan portfolio in the fourth quarter of 2024.

Who has the loan	Who can agree to settle	What changes for you
The original lender, such as Sallie Mae Bank	The lender	Hardship options may still apply; after charge-off it may sell the loan
A servicer, such as MOHELA for Navient	The owner, not the servicer alone	You pay the servicer, but the owner approves any settlement
A collection agency	The owner, through the agency	Federal debt collection law applies, including validation
A debt buyer	The buyer only	The original lender can no longer settle
A trust, such as a National Collegiate Student Loan Trust	The trust, through its servicers and collectors	Proof that the trust owns your loan matters

• Who has the loanThe original lender, such as Sallie Mae Bank

  Who can agree to settle

  The lender

  What changes for you

  Hardship options may still apply; after charge-off it may sell the loan

• Who has the loanA servicer, such as MOHELA for Navient

  Who can agree to settle

  The owner, not the servicer alone

  What changes for you

  You pay the servicer, but the owner approves any settlement

• Who has the loanA collection agency

  Who can agree to settle

  The owner, through the agency

  What changes for you

  Federal debt collection law applies, including validation

• Who has the loanA debt buyer

  Who can agree to settle

  The buyer only

  What changes for you

  The original lender can no longer settle

• Who has the loanA trust, such as a National Collegiate Student Loan Trust

  Who can agree to settle

  The trust, through its servicers and collectors

  What changes for you

  Proof that the trust owns your loan matters

SLM Corporation and Navient Corporation, 2025 Forms 10-K; CFPB, including its 2017 consent order with Transworld Systems, Inc.

If a collection agency or debt buyer writes to you, you can make it prove the debt with a validation request before negotiating, and how an original creditor, a collection agency and a debt buyer differ explains what each one can agree to.

What are the National Collegiate Student Loan Trusts?

The National Collegiate Student Loan Trusts are 15 Delaware statutory trusts, created between 2001 and 2007, each set up to acquire a pool of student loans; they "do not have any employees," and third parties do their servicing and collecting, according to a 2017 Consumer Financial Protection Bureau consent order. If a letter or lawsuit names a trust such as National Collegiate Student Loan Trust 2006-3, that trust, not the bank on your original paperwork, says it owns the loan.

On September 18, 2017, the CFPB sued the trusts in federal court in Delaware, alleging deceptive and unfair practices, and filed a proposed consent judgment. The court refused to approve it on May 31, 2020. After the Third Circuit answered two certified questions on March 19, 2024, the parties stipulated on April 25, 2025 to dismiss the case with prejudice, according to the CFPB's case page.

The same day in 2017, the CFPB issued a consent order against Transworld Systems, Inc., the trusts' sub-servicer since November 1, 2014. The order says law firms hired by Transworld "filed hundreds of debt Collections Lawsuits without the documentation necessary to prove Trust ownership of the loans," and Transworld agreed, without admitting or denying the findings, to pay a $2.5 million civil money penalty. With a trust, who owns your particular loan is a real question: ask for validation when a collector writes, and take any lawsuit to a lawyer.

Will Sallie Mae or Navient settle a private student loan?

Sallie Mae and Navient can each settle only the private student loans they still own, and neither company's annual report says what it accepts in settlement. They are separate companies: SLM Corporation, which owns Sallie Mae Bank, legally separated from the company now named Navient Corporation on April 30, 2014.

Sallie Mae had $20.3 billion of private education loans held for investment at the end of 2025, when 4.0% of its loans in repayment were 30 or more days delinquent. After charge-off it sells a segment of defaulted loans immediately, and since the second quarter of 2023 it no longer sells the defaulted loans it keeps, working them instead with in-house and third-party collectors. So the first question on a defaulted Sallie Mae loan is whether Sallie Mae still owns it.

A separate "Navient settlement" was a set of agreements Navient reached on January 13, 2022 with the attorneys general of 39 states and the District of Columbia, listed in its SEC filing that day. Navient said it would cancel approximately $1.7 billion in defaulted private education loans owed by approximately 66,000 borrowers, mostly loans made between 2002 and 2010. Nobody applied: Navient said it would contact those covered once the courts approved the agreements.

How much should you offer to settle a private student loan?

What to offer on a private student loan starts from two facts no percentage chart supplies: who owns the loan now, and how much you can pay without falling behind elsewhere. No private student lender publishes what it accepts, so a number quoted online as what Sallie Mae or Navient "takes" isn't a figure either company has published.

The mechanics match any unsecured debt: how to negotiate a debt settlement on your own covers the process, what percentage to offer to settle a debt covers the opening number, and if a collector has already named a figure, start with whether to accept a debt collector's settlement offer.

Here is the arithmetic on a hypothetical. Say a charged-off private student loan shows $18,000, and the owner agrees in writing to accept $7,200 in one payment. You'd pay 40% of the balance, and $10,800 would be forgiven. That 40% comes from this example, not from any lender.

Hypothetical: $10,800 forgiven, which can count as taxable income.

Illustrative figures, not a typical result.

A holder may also take installments. A lump sum closes the account in one step, while a payment plan spreads the cost but can unravel with one missed payment; a lump sum versus a payment plan weighs that trade. Either way, get the deal in writing before you pay. What a debt settlement agreement must say lists the terms, and with a cosigner, one term matters most.

What happens to your cosigner when you settle a private student loan?

Your cosigner is liable for a private student loan along with you, so a settlement protects the cosigner only if it resolves the whole debt: the written agreement should name the cosigner and say the debt is satisfied in full for both of you. Federal law defines a cosigner as an individual "liable for the obligation of another without compensation" (15 U.S.C. § 1650(a)(1)), and a deal that covers only the student can leave the cosigner owing.

Cosigners are common: SLM Corporation says approximately 92.8% of the private education loans it originated in 2025 were cosigned. And the usual way out closes once a loan is behind. Sallie Mae's Smart Option terms let only the borrower apply for cosigner release, after paying ahead or making 12 on-time principal and interest payments, among other conditions, and rule it out if the borrower was 30 or more days past due in the previous 12 months or the loan is past due when the request is processed.

Death is the exception written into federal law. For loans made on or after November 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act requires the holder, "when notified of the death of a student obligor," to "release within a reasonable timeframe any cosigner" (15 U.S.C. § 1650(g)(2)). Sallie Mae's terms also say a loan may be eligible to have the remaining balance waived if the student dies or becomes totally and permanently disabled. Other debts after a death are covered in whether you inherit debt when someone dies.

Tax paperwork can reach both of you. For a debt of $10,000 or more incurred after 1994 that two people are jointly and severally liable for, IRS instructions tell the creditor to report "the entire amount of the canceled debt on each debtor's Form 1099-C," and IRS Publication 4681 says each of you may get such a form yet may not have to report all of it as income.

• The loan is private, not federal

  It isn't in your StudentAid.gov account.

• You know who owns it today

  The lender, a debt buyer or a trust, not just the servicer or collector.

• You've checked the statute of limitations

  In some states a payment on an old debt can restart the clock.

• The offer is in writing from the owner

  With the exact amount and the payment date or dates.

• It names the borrower and the cosigner

  And says the debt is satisfied in full for both, with nothing left to collect or sell.

• It says how the account will be reported

  On each person's credit report.

• You've planned for Form 1099-C

  Each of you may get one.

• No lawsuit is pending

  If either of you has been served, talk to a lawyer or legal aid first.

Can a private student loan lender sue you, and how long does it have?

A private student loan lender, or whoever owns the loan now, can sue you, but only within your state's statute of limitations: the CFPB says that limit "varies from state to state," and that once it expires "the private lender is no longer legally allowed to sue you to collect the debt." Federal loans have no such limit.

The CFPB says a collector on a private student loan generally may not garnish your wages without a court order, intercept your federal or state tax refund, or garnish your Social Security payments. A court judgment can lead to wage garnishment under state law, so a summons is the one letter you can never set aside.

When the clock started and whether anything restarted it are state-law questions; the statute of limitations on debt, what makes a debt time-barred and what can restart the limitations clock cover them. If you've been served, respond by the date on the papers and call a lawyer or legal aid office that day; what to do when you're sued over a debt walks through it. Felix doesn't handle lawsuits: when court papers arrive on an account, it pauses the letters on that account and points you to a lawyer or legal aid.

Can private student loans be discharged in bankruptcy?

Private student loans can be discharged in bankruptcy, but a loan covered by 11 U.S.C. § 523(a)(8) is excepted from discharge "unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents." For most private loans, the clause that applies is § 523(a)(8)(B), which reaches "any other educational loan that is a qualified education loan" as the tax code defines it.

That definition, in 26 U.S.C. § 221(d), covers debt incurred solely to pay qualified higher education expenses: the cost of attendance at a school eligible for federal student aid, for a student enrolled at least half time. A private loan that doesn't fit, such as one for a school that isn't eligible for federal aid or one that went beyond the cost of attendance, may fall outside that clause. Whether yours does, and whether another part of the section reaches it anyway, is a question for a bankruptcy lawyer. Bankruptcy and debt settlement compared sets out what each route costs.

Do you owe taxes on a settled private student loan in 2026?

A private student loan settled in 2026 generally creates taxable income on the forgiven amount, because the American Rescue Plan Act's exclusion for forgiven student loans, private education loans included, covered only discharges in 2021 through 2025, according to IRS Publication 4681. For discharges after December 31, 2025, the student loan exclusion in 26 U.S.C. § 108(f)(5), rewritten by Public Law 119-21 on July 4, 2025, covers only a discharge on account of the student's death or total and permanent disability, and it requires your Social Security number on the return.

A 2026 settlement is therefore treated like other canceled debt. A lender that cancels $600 or more generally files Form 1099-C, and the IRS lists an agreement to cancel a debt "at less than full consideration" among the events that trigger one. Exclusions still exist, such as insolvency, which applies to the extent your total liabilities exceeded the fair market value of your assets immediately before the cancellation. Talk to a tax professional before you rely on one; taxes on settled debt explains the forms.

How does Felix handle a private student loan?

Felix negotiates the private student loans you choose to enroll, along with credit cards, personal loans, medical bills and accounts already with a collection agency or debt buyer; it doesn't negotiate federal student loans. Who owns the loan decides where each letter goes, because a lender, a collection agency, a debt buyer and a trust each need a letter addressed to a different party.

Felix drafts each letter in your own voice, you read and e-sign it, and it's mailed in your name from your own return address, so replies come to you. Felix negotiates by mail only, never by phone, and holds no power of attorney. Any offer that comes back is shown to you with the numbers written out, and you decide whether to accept it. If you do, you pay the creditor directly; Felix never holds your money.

The eligibility check is a soft credit pull that doesn't affect your score, and the privacy policy explains how that data is handled. Pricing is a subscription whose base covers up to three enrolled accounts at a time, with a smaller amount for each account after that, never a percentage of your debt. The FAQ covers the limits: no outcome is guaranteed, some creditors decline to negotiate, and Felix isn't a law firm and doesn't give legal advice.