DH had a loan that defaulted.  Way before I found these boards, I contacted the CA and gave them our bank account # to start repayment.  STUPID, I know.
With government contracts, this is not a bad or stupid thing.  Student loan collections is highly regulated.

We have been paying for a year.  Several times they have offered us to settle at $5k, balance is around $8k.  Is this a good thing?  How will it show on his credit? 

His credit will simply show a paid off or settled student loan.  Also, keep in mind that you will probably get a 1099 for the $3k write off.

If we choose not to settle can we get the collection status off the loan?
Nope...you are paying on a defaulted loan.  It is a collection account until it is paid off.  However you may want to look into rehabbing his loan...that will remove the negative status.

If we can, how do I approach that?  Every 6 months they contact us to set up the next 6 months worth of payments.  That's coming up ... how can I go about not giving them our bank account number? 

Suggestions, comments, I thank you in advance  

Tina