Because they require special government processing, any loans with a Process Type of 'S' (Student Loans in Interim) or 'P' (Student Loans in Payout), cannot be written off using the Write Off Loans option.
 
You will need to re-create the loan under a different closed-end loan category (maybe a special one called 'Student Loans in Collections').
TIP: If desired, while creating the loan you can use the Override feature (from the Recap screen) to edit date fields, etc., so that the new loan will mirror the original student loan settings.  (If you want to make these adjustments after the loan has been created, use the Update Account Information feature instead.)
Next, disburse the funds from the new loan to the original student loan, thus paying it off.  The student loan, being at a zero balance, would close during end-of-day processing. 
 
Finally, follow the normal procedure to write off the new loan. If your credit union has filed all necessary delinquency paperwork, the government should reimburse the funds to the credit union.