What Happens If You Don’t Pay College Debt?

College debt is a substantial financial commitment, often spanning years or decades. Understanding the ramifications of failing to meet repayment obligations is important, as non-payment can lead to escalating consequences that impact one’s financial standing and future opportunities. This article details the specific outcomes that arise when college debt goes unpaid.

Understanding Delinquency and Default

A loan becomes delinquent when a scheduled payment is not made by its due date. This initial stage carries immediate consequences, including late fees and credit bureau reporting, typically after 30 days. The longer a loan remains delinquent, the more negatively it affects a borrower’s credit score, with further reports at 60 and 90 days past due.

Delinquency eventually escalates to default, a more severe status indicating the loan is uncollectible under its original terms. The timeline for default varies significantly between federal and private student loans. Federal student loans typically enter default after 270 days of non-payment. Private student loans often default much sooner, sometimes after 90 to 120 days of missed payments, depending on the lender’s terms. Default triggers more drastic collection actions and long-lasting negative impacts.

Federal Student Loan Default Consequences

Once a federal student loan enters default, the U.S. Department of Education and its authorized collection agencies can initiate several actions to recover the debt. One action is administrative wage garnishment (AWG), allowing the government to seize up to 15% of a borrower’s disposable pay without a court order. This percentage is calculated after mandatory deductions like taxes and Social Security.

Another consequence is the tax refund offset, where the Department of the Treasury can intercept a borrower’s federal tax refund to apply it towards the defaulted loan balance. This offset can also extend to state tax refunds. The government may also offset Social Security benefits, meaning a portion of a borrower’s retirement or disability benefits can be withheld to repay the defaulted debt. This can significantly reduce a retiree’s or disabled individual’s monthly income.

Defaulting on federal student loans also results in the loss of eligibility for federal student aid programs, including grants, future loans, and work-study opportunities. Borrowers lose access to beneficial repayment options such as deferment, forbearance, and income-driven repayment plans. The entire outstanding balance, including accrued interest, often becomes immediately due, a process known as acceleration.

Private Student Loan Default Consequences

Private student loan default triggers distinct actions by lenders or their collection agencies, often characterized by aggressive collection efforts. Borrowers can expect frequent phone calls, letters, and emails demanding payment. These communications aim to compel immediate repayment of the outstanding balance.

A distinction for private loans is the increased likelihood of legal action. Private lenders frequently pursue lawsuits against defaulting borrowers to obtain a court judgment for the outstanding debt. Upon receiving a summons, borrowers are typically required to appear in court; failure to respond can result in a default judgment. A court judgment grants the lender powerful tools for debt recovery.

With a court judgment, private lenders can pursue wage garnishment, which, unlike federal AWG, typically requires a court order and adheres to state-specific limits. Lenders may also initiate bank account levies or seizures, allowing them to directly withdraw funds from a borrower’s bank accounts up to the judgment amount. A judgment can lead to property liens, where a legal claim is placed on a borrower’s real estate, potentially preventing its sale or refinancing until the debt is satisfied. For private loans, co-signers become fully and equally responsible for the entire debt upon default, facing the same collection actions as the primary borrower.

Long-Term Financial and Professional Impacts

Beyond immediate collection efforts, not paying college debt creates severe and prolonged damage to a borrower’s credit history and credit scores. A defaulted loan remains on a credit report for up to seven years from the date of default, significantly lowering credit scores. This diminished credit standing makes it difficult to obtain future credit, impacting eligibility for mortgages, car loans, personal loans, and even renting an apartment. Lenders and landlords often review credit reports, and a history of default signals a high-risk borrower.

Student loan default can also have implications for professional licensure, depending on the state and profession. Some states allow licensing boards to suspend, revoke, or deny the renewal of professional licenses for individuals with defaulted student loans. This can severely impede a person’s ability to practice their chosen profession and earn an income.

While bankruptcy might seem like an option for overwhelming debt, student loans are generally very difficult to discharge. Borrowers must meet a stringent “undue hardship” test, proving that repaying the loan would cause them and their dependents an impossible financial burden. This test is difficult to satisfy, meaning that even if other debts are discharged, the student loan obligation often remains. The persistent burden of defaulted debt and ongoing collection efforts can also lead to psychological stress and emotional strain for borrowers.