If you’re in over your head with student loans, you’re not alone. Fortunately, you’re not without options either.

Researchers estimate that more than 1 million borrowers go into default on their student loans every year. Despite the grim statistics, settling your student loan debt is possible — rare, but possible.

Can you settle student loans, and how do you negotiate a student loan payoff? Follow these tips to increase your chances of reaching the most favorable outcome.

Don’t wait until default to negotiate

You could avoid the student loan settlement process altogether if you take some preventive measures before your loan goes into default.

With a federal loan, default usually begins after you’ve gone without making a payment for about a year. With a private loan, however, you could go into default after as little as 90 days of nonpayment.

Instead of letting the default deadline limit your choices to negotiate a student loan payoff, talk to your lender beforehand about options such as:

  • Income-driven repayment plans. If you qualify, you could get a cap on your monthly payments plus some relief on interest.
  • Deferment or forbearance. You may be able to temporarily reduce your payments or temporarily stop making them.
  • Consolidation or refinancing. The former involves combining balances on multiple loans into one payment, while the latter involves seeking more favorable interest rates and repayment terms.

Your pre-default opportunities will vary depending on your circumstances, including whether you have federal or private loans. Check the terms of your loan agreement closely before contacting the lender.

Discuss hardship programs with the lender

In most cases, student loan settlement will be an option only for borrowers who have already exhausted payment reduction and postponement programs their lender offers. For the federal government, that includes graduated, extended and income-driven repayment plans, as well as deferment and forbearance options, which are also offered through nearly every major private lender.

When examining your lender’s hardship options to negotiate a student loan payoff, explain why you’re experiencing financial difficulty and share any ideas you have on how to get out of it. Borrowers need to have a clear summary of their finances, including all income, liquid assets and other debts.

Keep the conversation focused on what can be done to lower the debt and not on your personal feelings about the situation. The question is not “Can you effectively play on the lender’s sympathies?” It’s simply “Can you settle student loans?”

Know the types of settlement offers

Student loan settlement is usually possible only in cases where the borrower can offer a lump sum. Collection agencies are authorized to accept three types of settlement offers without getting approval from the Department of Education:

  1. The amount of the remaining loan principal plus accrued interest (but not collection charges)
  2. The principal plus half of unpaid interest
  3. 90 percent of the current loan and interest balance

Settlements that don’t fit into one of these three categories are uncommon. They may take longer to obtain since the Department of Education will need to review them.

Be aware of which assets are off-limits

Lenders typically will approve a settlement only if the lump sum offered exceeds the amount the lender expects to get over the life of the loan.

If a borrower seeks a settlement because he or she suddenly comes into a large sum of money, such as an inheritance or sizable bonus, lenders will likely not agree to a settlement. The reason is that assets held in checking, savings and investment accounts become fair game in a collection case.

On the other hand, lenders can’t go after money held in qualified retirement plans, including 401(k)s and IRAs.

Let the lender make the initial offer

To get the best student loan settlement deal, experts say to let the lender take the lead and make the first offer. Don’t stake out a position on a specific amount as you try to negotiate student loan payoff.

“Say that you’d like to discuss a settlement and (ask) what amount they would be willing to accept as payment in full of your debt,” says Kantrowitz. “Try to get them to make the first offer. Don’t you come in and say, ‘I’d like a settlement for this amount. …'”

Request a paid-in-full statement

If settlement is possible, have an attorney review the terms of the offer and request documentation that shows that all of your student loans have been paid and settled.

Insist on a written agreement that clearly states all the terms of your student loan settlement, including the provision that you’ll receive a paid-in-full statement once you’ve made all the payments.

CONSOLIDATE YOUR LOAN: Get answers to frequently asked questions on student loan consolidation.