I Haven’t Paid My Student Loans in Years — Can I Never Pay?

Picture this: you’re up to your eyeballs in student loan debt.

You haven’t made a payment in years, and the debt collectors are closing in like a pack of hungry wolves. They’re howling all day and night, and your credit score has been dragged through the mud.

Or maybe it’s eerily quiet, and the student loans have fallen off your credit report, and you’re feeling like you’re living in a ghost town. But you know that sooner or later, the piper will demand to be paid.

You want to buy a home, get married, build a business, and all that jazz, but the specter of unpaid student loans looms over you like a dark cloud.

So what happens when the debt comes due?

Related: Do You Have to Pay Student Loans If You Leave The Country?

There’s an upside to not having paid your student loan debt. Sure, you may have built up unpaid interest and collection fees, and your credit score may have taken a hit.

But think about it: did you really have a choice?

You had bills to pay, mouths to feed, and a tank to fill. There were no income-driven repayment plans back then, no safety net to catch you when you fell. Instead, your student loan servicer pushed you into forbearance or deferment, giving you false hope until the day they told you there was nothing more they could do. Your student loan payment was due in full.

So you took the little money you had and invested it in yourself.

You ate better food, joined a gym, and even splurged on a budget-all-inclusive resort in the Caribbean. You made choices that were good for your physical and mental health and lived life on your own terms.

And now, as the years have passed, your income has increased, and retirement is looming on the horizon, you’re ready to face the consequences of that choice. Sure, the closet where you’ve locked away your student loan debt may creak with the weight of years of neglect. But you know what? You’re ready to face whatever’s hiding behind that door.

Related: How to Get Student Loans Out of Default

• Your credit score will plummet. Your servicer will add the missed payments for each of your loans to the three major credit bureaus, which will raise the interest rates you get for credit cards, auto loans, home loans, and the like. A poor credit rating will also make refinancing your loans with a new lender nearly impossible.

• Your loan balance may increase. When you default, your lender may add late fees and debt collection costs to your balance. It even may add the outstanding interest to your principal through a process called capitalization.

• You’ll lose money. The federal government can use the Treasury Offset Program to garnish your wages, take your tax refund, and offset your Social Security payments to repay defaulted loans. Private lenders must get a court order before grabbing a piece of your paycheck or putting a lien on your bank account or house.

• You’ll miss out on forgiveness. While in default, you can’t progress towards cancellation options like the Public Service Loan Forgiveness Program or income-based repayment loan forgiveness. Read more about defaulted student loan forgiveness

• You can’t get a federally backed-mortgage. Your name will be added to the CAIVRS report, disqualifying you from buying a home with an FHA, VA, or USDA home loan until you dig your federal loans out of default. Depending on your credit, you may be able to squeeze into a conventional mortgage. Read more about buying a house with $100k student loans.

• You’ll lose eligibility for new student aid. You’ll be barred from getting new federal student aid. If you need financial aid to go to school, the quickest way out of default is to apply for a Direct Consolidation Loan and pay back your loans under an income-driven repayment plan. Read more about how to consolidate defaulted student loans.

• You could be sued. The Education Department rarely sues its student loan borrowers; it has many other options to collect. The one exception is Perkins Loans. Schools are quicker to sue once you’re past due. Many private lenders wait until the statute of limitation is close to ending before moving forward with a lawsuit. They’d rather avoid paying the attorney’s fees and filing costs and negotiate a student loan settlement.

• Your professional license could be suspended. Some states can revoke your professional license if you default on student debt.

Thankfully, jail time isn’t typically a consequence of not paying student loans.

Related: Can You Go To Jail For Not Paying Student Loans?

Ultimately, you could decide never to pay your student loans. If you did, you wouldn’t be alone.

With the federal student loan payment pause being extended not once, not twice, but multiple times over two presidential administrations in the midst of the never-ending pandemic, not surprisingly, dodging student loan payments has become a relatable joke across social media.

But is this the way to go? Can you bury your head in the sand and pretend your loans don’t exist? It’s a gamble, and the outcome depends on the types of loans you have: federal or private loans.

Federal student loans

Unfortunately, loans don’t just magically disappear just because you haven’t paid in years or never made a payment.

Well, most don’t.

The federal government owns a whopping 93% of student loan debt. And guess what? Federal student loans don’t have a statute of limitations. That means they’ll follow you to the grave.

Related: Is My Spouse Responsible for My Student Loans If I Die?

Even if your student debt has fallen off your credit report, you’ll still owe federal student loans. You’ll also be at risk of wage garnishment, tax refund seizure, and Social Security benefits offset until you return your account to good standing.

Now, historically, the U.S. Department of Education and its debt collectors have made it challenging to do just that. They’ve forced borrowers to jump through hoops, fill out endless paperwork, and make monthly payments for nine straight months. It’s a bureaucratic nightmare that can seem never-ending.

But there’s some good news on the horizon. During the pandemic, the Biden administration has stepped in to help the 8 million borrowers with FFEL and Direct Loans who have found themselves in default. They’ve introduced a program that could get those borrowers back on track with a simple phone call and an agreement to make future federal student loan payments based on their discretionary income.

Related: How to Apply for Fresh Start Program for Student Loans

Private loans

Private student loans are a different story.

They’re subject to a statute of limitations. That means the loan holder must sue you within a certain period of time, or else they lose the right to force you to pay by court order. The length of that period depends on the terms in your promissory note and the state law where you live.

This is where things get murky.

Even if the statute of limitations has passed, private lenders can still send you collection letters if they don’t violate any laws. This is usually when you’ll get tempting student loan settlement offers, promising to wipe your slate clean for pennies on the dollar.

But what are you actually paying for?

Here’s the truth: paying the settlement amount won’t remove the late payments and defaulted private student loans from your credit history. And if the collection agency admits they can’t sue you, what incentive do you have to pay?

If you’re having payment trouble, do everything you can to avoid the consequences of defaulting. Your options may include:

• Signing up for an income-driven repayment plan. IDR payment plans tie your bill to your discretionary income and family size. They also lead to the government writing off your remaining balance after you’ve made at least 240 monthly payments.

• Asking for a deferment or forbearance. Both options give you breathing room to figure out your next steps for dealing with your debt. But there is a downside to these payment breaks: student loan capitalized interest.

• Refinancing with a new lender. Student loan refinance can get you a new loan with a better interest rate and repayment terms depending on your credit.

• Filing for bankruptcy. Chapter 7 or Chapter 13 bankruptcy will pause your payments and protect your cosigner. Plus, they wipe out your credit card bills, medical expenses, and car loans. But to eliminate your loan balance, you must file a student loan adversary proceeding.

If you haven’t paid your student loans in years, it can be scary trying to figure out where to start. You want to do the right thing but don’t want to worsen things.

I can help with that. Book a call so we can evaluate your student loan repayment options. With the right strategy, you can tackle your remaining balance and meet your financial goals even if your student loans never disappear.

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