If you do nothing the plaintiff can get a default judgment and begin garnishment proceedings. The amount that can be garnished is based on state law generally anywhere from 10% to 25% of net income over the poverty level. The plaintiff is probably assuming it can get more from garnishment than your small payment offer.
Another option would be a Chapter 13 bankruptcy which essentially allows you to pay what your disposable income is. The debt likely would not be paid off in the 60 months of a plan, so you would still owe, but hopefully in a better foothold to pay the debt.
A final option is to find out if you qualify for repayment programs through the student loan company. If it is a federal loan there are income based programs you might qualify for. Good luck.
This should not be considered legal advice, but rather simple information. You should consult a lawyer to review your unique situation. No client-lawyer relationship exists until you sign something indicating there is.
If you do not dispute the debt by filing a timely response after being served, a judgment will follow a few weeks later.
After an indeterminate time after the judgment is signed, the creditor may seek to collect, such as by garnishing bank accounts.
The practical effect is the amounts just keep adding up until paid, or until there is a change in the law.
Under extremely limited circumstances, the debt may be discharged in a bankruptcy, if it is shown to be an undue hardship. There are developing cases that define the circumstances.
You may also review the Department of Education website for a new program for loan forgiveness, and reduction, under some circumstances.
General legal advice is offered for educational purposes only. A consultation with a qualified attorney is required to determine specific legal advice as to your situation and applicable law. We are a debt relief agency and we help people file for relief under the bankruptcy laws.