I am new to the board. Great Website BTW. I wanted to know what is the best move for my situation. I have a balance of Student Loan debt of just over $32k. Speaking with the collection agency that's handling my acct., they tell me they can settle for just over $29k. I have the money to pay it, but I want to affect my credit the BEST way I can. Should I pay it off for the $29k, or should I do a rehab? I am looking for the best solution. Help.

Rehab will have the greatest affect on your credit score. It will remove the default notation from your account.

Is there any way to get the interest that has accrued to my original loan total removed? When I got out of school I think I owed around $16000. After deferments, and consolodations, I now owe $32k. I would like to settle for whatever my original balance was, plus maybe some interest and penalties.....I think $20 would be fair. I know what I think doesn't matter to the gov't. though.

They wont settle for original principal. They will usually waive the collection costs and in the case of very old loans, some of the interest. But never all. They will look at your credit and work ability. Since there is no SOL they can collect all of it if they wish. Also, with any settlement, you will be 1099'ed on the write off balance, so it will cost you money next year at tax time.