What happens if you never pay your student loans?

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 your school loans?” says the narrator. If you don’t pay your federal student loans, the consequences are even worse than if you don’t pay your private student loans. The Department of Education has been given exceptional collection powers by the federal government, allowing it to seize your earnings, Social Security benefits, and tax refunds, including the Earned Income Tax Credit.

Private lenders have fewer collection possibilities. They can put a negative mark on your and your cosigner’s credit records, but they can’t take your house, garnish your earnings, or raid your bank account unless you sue them and win a judgment. And the statue of limitations may have run out by then.
Learn what happens if you don’t pay your student loans, as well as how to prevent the repercussions.

Latest on student loans

Forbearance on Covid-19 has been extended: The start date for student loan payments has been pushed back to May 2, 2022, following the most recent payment pause.
Private loans that have been charged off? Learn how to get out of default on a private student loan.
Have you taken out loans for your child? Learn about the repayment options for Parent PLUS Loans.
Do you want to get out of default? Your payments are covered by the CARES Act provisions for student loan rehabilitation.

I Can’t Pay My Student Loans: What to Expect

What happens if you don’t make your payments depends on whether you have federal or private student loans.

Federal Loan Timeline

Undergraduate and graduate students, as well as parents of college students, can apply for federal student loans. All loans are now given through the Direct Loan Program, which follows the deadlines outlined below. Note that this is outside of the Covid-19 pandemic-related window of interim payments and interest rate relief.
Following graduating, immediately. You have a six-month grace period after graduation if you have direct subsidized or unsubsidized loans. You are not required to make payments on your debt during the grace period. Although there are no grace periods for Grad PLUS and Parent PLUS loans, you can choose to delay payments until six months after graduation.

It’s been six months since graduation. Your debts begin to be repaid six months after you graduate. You must begin repaying your loans according to the repayment plan outlined in your loan agreement. The default repayment plan includes a 10-year period and monthly payments that are set in stone.
If your payment is one day late, you will be charged a late fee. Your loan becomes delinquent if you are even one day late with a payment. Until you pay the past due balance and any fees, your account will remain delinquent.

If your payment is not received within 30 days, you will be charged a late fee. Your loan servicer will charge you a late fee if you do not make your entire monthly payment within 30 days of the due date. The price might be as much as 6% of the amount you owe in late fees.
If your payment is 90 days late, you will be charged a late fee. The loan servicer will report your delinquency to the major credit bureaus, Equifax, Experian, and TransUnion, if you’ve been late for 90 days or more.
If your payment is overdue by 270 days, you will be charged the following fees: If you don’t make payments for 270 days or more, your loans will default.

Private Student Loan Timeline

At the end of the 2019 school year, there were almost $130 billion in outstanding private student loans, ranging from undergraduate to medical school debts. Private loans are not the same as federal loans. Repayment periods vary based on the lender, and are offered by internet lenders, banks, and credit unions. Private student loans generally follow the timeline outlined below:
After graduation, immediately. Although some private loan lenders offer grace periods to customers, this is not the case for all. Many lenders expect you to start making payments as soon as you graduate.

There is a one-day delay in payment. Your lender will classify your account as delinquent and report the delinquency to the credit agencies as soon as one day after your payment due date.
Payment is overdue by 90 days: The lender will consider you in default if your payment is 90 days late. They may hire a collection agency or take you to court to try to recover the debt.
Payment is overdue by 120 days: When a debt is 120 days late, the lender is likely to charge it off. The debt will be sold to a collection agency, which will take care of the loan in the future.

The short-term consequences

You are deemed delinquent if you are even one day late on your student loans. If you skip a few payments, you may incur the following penalties:
Fees for late payments. A late payment, defined as one that is made after the due date but not before it, may incur a late payment fee. This amount varies per lender, and not all of them charge this price, but flat late fees or fees based on a percentage of your missed payment are extremely frequent.
Tax refund withheld. If you default on your federal student loans, the government may withhold your refund until you catch up.

Garnishment of wages. If you’re a few months behind on your student loans, your lender may take steps to garnish your salary – up to 25% of your disposable income in some cases. It can continue to do so until you’ve paid off a portion of your debt and are in good standing.

The long-term consequences

Although a loan is considered delinquent after one missed payment, your lender or loan servicer may not record you as late to the major credit bureaus until you’ve been 90 days past due. Here’s what can happen if you don’t pay your student debts for a long time:
Default. Your debt will default after several months of missed payments. Defaulting on a loan has different time and penalties depending on the lender. In some situations, the entire sum of your student loan is due right away.

Future aid eligibility was revoked. You could forfeit any future student aid, including scholarships, grants, and federal student loans, if you’re currently in default. Defaulted debts on your credit report may make it more difficult to purchase a home, a car, or obtain a credit card.
Credit score decreases. Your credit score may suffer if you do not pay your student loans for an extended period of time.
Litigation is a possibility. Your loan could be sold to a debt collection agency, which can contact you and send you letters in an attempt to recover a debt. Lenders will have to go to court to collect wages. If you don’t pay back your loans, you may face legal action.

Do student loans go away after 7 years?

While unfavorable information about your student loans may be removed from your credit reports after seven years, the loans themselves will remain on your credit reports — and in your life — until they are paid off. In exceptional instances, you may be able to discharge your student loans through bankruptcy, but in most cases, the only method to discharge your debt is to complete repayment.

Better Options If You Can’t Pay

If you’re experiencing problems making payments on your student loans, you should contact your lender right away. There are numerous solutions available to you, all of which are preferable than defaulting on your student loans.
To begin, you should consider switching to a more inexpensive repayment plan. If you qualify, you could convert to IBR or PAYE, which are income-based programs that may allow you to pay nothing.

Second, if you are experiencing a temporary difficulty, you may be able to request that your debts be deferred or forbeared. This will allow you to reorganize without needing to make payments. Interest will continue to accrue, but you will no longer be obligated to make payments.
Finally, investigate if you are eligible for any student loan forgiveness programs. You could convert repayment plans to one that incorporates student loan forgiveness if you don’t qualify for a standard student loan forgiveness program.

What happens to student loans when you die?

When a borrower dies, his or her federal student loans are forgiven. This includes any PLUS loans taken out by a parent, which will be forgiven if that parent passes away. Private loans may be more difficult to discharge, and the loan may have to be repaid from the estate of the decedent. In the event of a death, private lenders can choose how vigorously they want to pursue a debt.

The bottom line

Paying back your student loans on time can have disastrous consequences for your finances, credit, and future borrowing opportunities, so try your best to keep up with your payments.
If you’re having trouble making payments, consider an income-driven repayment plan or refinancing your loans. Not paying back your student loans will have long-term consequences, so the best course of action is to get back on track.