What Happens If You Don’t Pay Student Loans?

Aida Gadelkarim

April 2, 2022

What Happens If You Don’t Pay Student Loans?

Student loans are one of the most significant financial burdens that many young Americans face. But what happens if you don’t pay student loans?

Making these payments on top of other financial responsibilities can be challenging. As a result, more than 1 million student loan borrowers go into default every year.

Furthermore, a study by the Federal Reserve found nearly one in five student loan recipients were at least 90 days behind on payments.

Unfortunately, there can be many negative consequences of failing to make your student loan payments, including wage garnishment, a drop in your credit score or a suspension of your professional license.

Luckily, there are steps you can take to prevent this – so act early if you’re struggling to make your loan payments.

What Happens If You Don’t Pay Student Loans?

Failing to make payments on your federal or private student debt can have serious negative impacts on your overall financial picture.

The first day after a missed loan payment, your loan becomes delinquent, and it stays that way until your payments are up to date. Each missed payment might also result in a late fee.

Delinquent federal student loans aren’t reported to the credit bureaus until they are more than 90 days past due. You have a chance to catch up before it negatively impacts your credit. But in the case of private loans, your lender may report it to the credit bureaus as early as 30 days past due.

Having late payments on your credit report can negatively impact your credit score and make it more difficult to open credit cards, borrow money or even get an apartment.

The longer your loans are past due, the worse the ramifications become. After your direct federal loans are more than 270 days past due, they enter default.

This process happens much quicker for other loans. Private student loans enter default after 120 days, and Federal Perkins loans can enter default immediately after a missed payment.

Your credit will take a much larger hit than it would for just a late payment. You may also face wage garnishment or other legal action.

Note: Federal student loan payments are currently suspended due to emergency action by the federal government in response to the COVID-19 pandemic. Eligible loans are placed in automated forbearance with a temporary 0% interest rate until . There are no monthly payments required and no ramifications if you don’t make payments during this time.

Can You Get Rid Of Your Student Loans?

Federal student loans aren’t like other debts that have a statute of limitations and eventually fall off your credit report if you don’t pay them. Federal student loans have no statute of limitations, meaning the government can try to collect their money for as long as they want.

One clear path to getting rid of federal student loans without fully paying them off is to become eligible for student loan forgiveness or discharge.

  • Public Service Loan Forgiveness: Available to borrowers employed by a government or nonprofit organization who make at least 120 on-time payments while working http://www.paydayloansohio.org for a qualifying employer.
  • Teacher Loan Forgiveness: Available for up to $17,500 of forgiveness to teachers who work in a low-income school for five years.
  • Closed School Discharge: Available to borrowers whose school closes while they are enrolled or soon afterward.
  • Total and Permanent Disability Discharge: Available to borrowers who are permanently disabled.

Keep in mind that forgiveness programs often require you to make on-time payments for a specific number of years. These programs won’t get you out of making at least some payments.