Please provide additional information. Is this a federal or private loan? Is the loan in default?

At 8.5% interest and (I'm assuming) a 30 year term, the monthly payments on $250,000 in debt would be $1,922. Even interest-only payments would be $1,771. So the $1,200 payments you mentioned don't make sense, as that would be less than the interest that is accruing. Also, $90,000 ballooning into $250,000 doesn't make sense unless there was an extended period of nonpayment and other charges/fees (such as collection charges). For example, at 8.5% interest it would take 12.5 years of nonpayment (including deferments and forbearances) for the loan amount to grow to $250,000. So it would seem that there's more to your situation than in the short question you asked.

If this is a federal loan, ask the lender that holds the loan about income-based repayment. This will base your monthly payments on your discretionary income and not the amount owed. After 25 years the remaining amount owed will be forgiven. (If you're in the income-contingent repayment plan, switch into income-based repayment, as the monthly payments will be lower.) See www.finaid.org/loans/ibr.phtml for more information.

If this is a private student loan, your options are much more limited. Unless you can cut your expenses and increase your income, you are likely to end up defaulting on the debt. Is there a reason why you're unable to repay the debt besides the magnitude (e.g., you trained to be a doctor but are unable to practice because of a disability)? If so, you might be able to get an undue hardship bankruptcy discharge, though this is very difficult to do.