The rules of the site are to keep all responses on a topic in one thread, so "moving this discussion" is neither helpful nor productive. It's also unlike to change the response.
Apparently, your father-in-law voluntarily agreed to this settlement. Should he have thought about, gotten professional advice from attorney, and/or consulted you before he did so, since it didn't eliminate the debt? Absolutely. None of it illegal unless you are trying to claim that 1) he is incompetent to manage his affairs and didn't know what he was doing or 2) that the collectors violated the Fair Debt Collection Practices Act (and state guarantors for student loans are, I believe, exempt from it). If you believe that your father-in-law is incompentent and was taken advantage of, your recourse is to report the collector to whatever agency in your county or state deals with adult protective services. If you believe that this was a violation of FDCPA, your recourse is to report the collector to the Federal Trade Commission, which oversees its enforcement.