Not paying student loan debt drops your credit score and, if left unchecked, could lead to money being taken from your paycheck, bank account, and tax refund. Plus, it can stop you from buying a home.
"What happens if you don't pay student loans?" The consequences of never paying your federal student loans are greater than if you skip out on your private student loans. The federal government has equipped the Department of Education with extraordinary collection powers that allow it to garnish your wages, Social Security Benefits, and tax refund, including your Earned Income Tax Credit.
Private lenders have fewer options to collect. They can ding you and your cosigner's credit reports, but they can't take your home, garnish wages, or dip into your bank account until they sue you and get a judgment. And the statute of limitations can expire before that happens.
Ahead, learn what happens if you don't pay student loans and how to avoid the consequences of not paying.
Latest on student loans
- Covid-19 forbearance extended: The latest student loan payment pause moved the repayment start date to May 2, 2022.
- Private loans charged off? Learn how to get out of private student loan default.
- Borrowed loans for your kid? Read about Parent PLUS Loan forgiveness retirement options.
- Need to get out of default? The student loan rehabilitation CARES Act benefits cover your payments.
What happens if you don't pay student loans?
- Less than 15 days late. You can avoid delinquency by making the monthly payment within 15 days of the due date. Federal loans have a grace period that gives you a window to pay your bill within. Private loans often have a similar cushion.
- 30 days late. You'll be hit with late fees, but your loan servicer won't tell the credit bureaus about the missed payments — at least not for federal student loans — until you fall three months behind.
- 90 days late. You'll get the first late notice on your credit report, but it will show the past three months of missed payments. Those negative marks can knock as much as 100 points off your credit rating. Plus, the damage multiplies if you've fallen behind on more than one loan.
- 120 days late. Your private student loans will be marked as being in default and referred to a collection agency soon after. Your credit will keep taking a hit, and phone calls demanding payment will increase. But you're still safe from wage garnishment.
- 270 days late. If you ever wondered, "are my student loans in default?" this is the point when federal loans default. Your student loan servicer will transfer your account to the Department of Education's Default Resolution Group to start the collection process.
Consequences of not paying student loans
Aside from bad credit, here's what you're facing if you never pay your student loans.
- 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 benefits to repay student debt. Private lenders have to 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 you're in default, you can't make progress towards cancellation options like the Public Service Loan Forgiveness Program or income-based repayment loan forgiveness. It may even cause you to miss out on President Biden's $10,000 student loan forgiveness if it happens.
- You can't get a federally backed mortgage. Your name will be added to the CAIVRS report, which will disqualify 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. You can click here to get tips on 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 applying for a Direct Consolidation Loan and paying back your loans under an income-driven repayment plan. You can click here to learn 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 expiring 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.
Learn More: Defaulted Student Loan Forgiveness
What happens if you pay less than the minimum payment on student loans?
If you face financial hardship and can't afford to pay your full bill, you may consider paying less than the minimum payment, not your student loans. But it doesn't help. Making a partial payment is still a late payment. If you don't catch the account up, the loan will fall into delinquency and, soon after, default.
Before sending in part of the bill, ask your loan servicer about available repayment options. Borrowers with federal loans are eligible for income-driven repayment plans, which set payments at a portion of your income. Your payment could be zero if you're unemployed or rely on Social Security benefits.
I can't pay my student loans what should I do?
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 Plans tie your payment to your discretionary income and family size and stretch your repayment term to at least 20 years.
- Asking for a deferment or forbearance. Both options give you a bit of 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 better interest rates 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 both vanish your bills for credit cards, medical expenses, and car loans. But to eliminate your loan balance, you'll need to file a student loan adversary proceeding.
The Bottom Line
Not paying back your student loans wrecks your finances and puts your dreams of homeownership on hold. If you're struggling to find suitable student loan repayment options, sit down with a student loan consultant to see what other help is out there.