What Happens If I Don’t Pay My Student Loans?

The Delinquency Stage

Missing a student loan payment impacts a borrower’s financial standing. The period immediately following a missed payment, but before a loan formally enters default, is known as delinquency. During this stage, the loan is considered past due, and the borrower may experience initial consequences.

Loan servicers contact borrowers shortly after a payment is missed, often through phone calls, emails, or letters. These communications remind borrowers of overdue payments and may offer options to bring the account current. Late fees are usually assessed as soon as a payment is not received by its due date, increasing the amount owed.

Interest continues to accrue on the outstanding loan balance throughout the delinquency period, even as late fees are applied. Interest accumulation means the total debt grows larger the longer the loan remains delinquent. This financial burden increases steadily, making it harder for the borrower to catch up on payments.

Delinquency impacts a borrower’s credit score. After 30 days, missed payments are reported to the major credit bureaus. This negative mark can lower a credit score, making it harder to obtain new credit, favorable interest rates, or rent an apartment. Longer delinquency worsens the negative impact on credit history.

The Default Stage

When a student loan remains delinquent for an extended period, it transitions into default, triggering severe consequences. For most federal student loans, default occurs after 270 days of non-payment. Private student loans often have different terms, with default sometimes occurring as early as 90 or 120 days after a missed payment, depending on the loan agreement.

Once a federal student loan enters default, the entire outstanding balance, including interest and collection costs, becomes immediately due. This acceleration means the full amount is due immediately, not scheduled payments. A borrower in default also loses eligibility for federal student aid programs, including grants, work-study, and additional federal student loans.

Defaulting on federal student loans eliminates access to repayment options that were available previously. Borrowers lose the ability to apply for deferment, forbearance, or income-driven repayment plans, which provided temporary relief or adjusted monthly payments. The government can collect defaulted federal loans through wage garnishment, withholding a portion of disposable pay from employers. Federal law limits this garnishment to 15% of disposable earnings.

Another collection method for defaulted federal loans is the offset of federal payments, such as tax refunds or Social Security benefits. The U.S. Department of the Treasury can intercept these payments through the Treasury Offset Program to satisfy the outstanding debt. Collection costs are added, increasing the total owed. Lawsuits may be initiated to recover funds, potentially leading to court judgments.

Private student loans in default have distinct consequences. Private lenders also accelerate the entire loan balance upon default, making it immediately payable. Credit history impact is severe and long-lasting, impairing the borrower’s ability to obtain credit for years. Private lenders can pursue legal action, leading to lawsuits, judgments, wage garnishment, or property liens. Unlike federal loans, private loans lack federal protections like wage garnishment limits or benefit offsets, giving lenders broader collection avenues.

Pathways to Resolution

Addressing student loan delinquency or default requires proactive engagement with loan servicers or lenders. For borrowers facing delinquency, options exist to prevent default. Income-Driven Repayment (IDR) plans, for federal loans, adjust monthly payments based on income and family size, potentially lowering payments to an affordable level.

Deferment or forbearance offers temporary relief for federal loans, allowing borrowers to pause or reduce payments. Deferment is often available for specific circumstances, such as unemployment, while forbearance may be granted for financial hardship. Interest may accrue, increasing total loan cost, so understand terms before electing these options.

For defaulted federal loans, pathways exist to restore good standing. Loan rehabilitation requires the borrower to make nine voluntary, reasonable, and affordable monthly payments within 10 consecutive months. Rehabilitation removes default from the borrower’s credit report, though late payments remain. This option is available once per loan.

Loan consolidation removes defaulted federal loans by combining them with other federal loans into a new Direct Consolidation Loan. To consolidate a defaulted loan, borrowers must agree to repay the new loan under an income-driven repayment plan or make three consecutive, on-time monthly payments before consolidation. This restores eligibility for federal student aid and repayment options.

Paying the defaulted loan balance in full or making a substantial lump sum payment can also resolve the default immediately.

Addressing defaulted private student loans involves direct negotiation with the lender or collection agency. Borrowers may negotiate a settlement for a reduced amount, especially with a lump-sum payment. Lenders may establish a new payment plan or modify terms to make payments manageable. If a borrower’s financial situation and credit score improve, refinancing a defaulted private loan with a new lender may be possible, though often difficult.