The original amount was $20,0000. I did call the lender to ask if something could be worked out. The rep said no. I asked for a manager, was not able to speak to one. I do not know how to handle this.
In the meantime the monthly payment is $250. Do you think I should try to reduce this amount by filling out an income based payment, I heard this is also disastrous.
In reading your question again, it looks like they are requiring you to contact the police if you decide to go the fraud route. With the amount of money involved, this could result in felony charges against your daughter. I think your best bet is to contact a consumer protection attorney. There may be defenses based on the underlying debt, the school, the collection attempts, etc. You need to get specific advice from an attorney, not general information from a question and answer website. The only way to do that is to meet with an attorney.