What Happens If You Stop Paying Your Student Loans?

If you find yourself unable to make payments on your student loans, understanding the potential repercussions is important. When loan payments cease, the account transitions from a current status to one of delinquency, which can eventually lead to default. Student loan debt is generally not dischargeable in bankruptcy, meaning that even a bankruptcy filing typically does not eliminate the obligation to repay these loans.

Initial Financial Penalties and Loss of Benefits

The moment a student loan payment is missed, the loan becomes delinquent. While a loan is considered delinquent from the first day a payment is late, most loan servicers will report this delinquency to national credit bureaus once it reaches 90 days past due.

Federal student loans generally enter default after 270 days of non-payment. For private student loans, the timeline to default is often shorter, typically ranging from 90 to 120 days of missed payments, though some may default after a single missed payment depending on the loan agreement.

As a loan becomes delinquent and moves towards default, additional charges begin to accrue. Late fees are commonly applied to overdue payments, increasing the total amount owed. Interest continues to accumulate on the outstanding balance, further enlarging the debt even as no payments are being made.

Borrowers also lose access to various benefits. Eligibility for flexible repayment plans, such as income-driven repayment plans for federal loans, is often revoked once an account becomes delinquent or defaults. Options like deferment, which allows for a temporary pause in payments due to specific circumstances, and forbearance, which provides a temporary suspension of payments, also become unavailable.

For many loans, particularly private student loans, defaulting can trigger an acceleration clause. This means that upon default, the entire outstanding balance of the loan, including all accrued interest, becomes immediately due and payable. While federal loans also have this provision, private lenders are typically quicker to enforce it, demanding full repayment rather than just the overdue amounts.

Credit Score Deterioration and Future Financial Restrictions

When student loan payments are missed, this negative activity is reported to the three major national credit bureaus: Experian, Equifax, and TransUnion. A default status is added to the credit report once the loan officially defaults. These negative marks can remain on a credit report for up to seven years from the date of default.

The impact on credit scores can be substantial. A single 90-day delinquency can cause a considerable drop, particularly for individuals with strong credit histories. Reports indicate average credit score declines of 63 points, with some borrowers experiencing drops of 175 points or more, especially those with previously excellent credit scores above 780. This severe reduction in credit score directly limits a borrower’s ability to access new credit and financial products.

Damaged credit makes it significantly more challenging to secure various types of loans. Obtaining a mortgage becomes difficult, as lenders view a defaulted student loan as a high risk. Federal loan defaults, in particular, can flag a borrower in a national system, making it problematic to get government-backed home loans like FHA, VA, or USDA loans. Similarly, securing auto loans or credit cards becomes harder, often resulting in denials, higher interest rates, or the need for a co-signer.

Beyond traditional lending, a poor credit history stemming from student loan default can affect other aspects of daily life. Renting an apartment can be challenging, as landlords frequently check credit reports to assess financial responsibility. A low credit score may lead to rejection or a requirement for a co-signer or larger security deposit. Obtaining certain types of insurance, such as homeowner’s insurance, or even securing specific employment opportunities that involve credit checks, may become difficult.

A borrower with defaulted federal student loans also loses eligibility for future federal student aid. This means they cannot receive additional Pell Grants or new federal student loans until the defaulted loan is resolved. This restriction can severely limit opportunities for further education or training, impacting long-term career prospects.