What Happens if You Never Pay Your Student Loans?

As a student loan borrower, you signed a promissory note or loan agreement accepting your responsibility to repay the debt. However, not all borrowers understand exactly what happens if they fail to repay their student loans.

A recent 2023 Pew Charitable Trusts survey revealed that while most borrowers are aware of the consequences for student loan default, only 30% to 50% of respondents actually knew about the specific consequences that can arise. 

Keep reading to learn what happens if you stop paying your student loans and how to avoid default.

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What happens if you never pay your student loans?

After a specified period passes without payment, your loan will default. This time frame depends on the type of student loan you have.

Generally, federal Direct Loans enter default after 270 consecutive days without payment. Private student loan default usually starts after 90 days of no payments, but this can vary by lender.  

Being late on a payment generally won’t cause you to default on the loan right away. Instead, the loan is considered “delinquent,” which means that you missed your student loan payment’s due date. 

When a student loan goes into default, it can have serious consequences for the borrower. Here’s what can happen.

Reduced credit score

Like in delinquency, your loan servicer or lender reports a loan’s default status to the credit bureaus. A default record stays in your credit history for up to seven years and lowers your credit score immediately.

Wage garnishment

Wage garnishment means that a loan holder can require your employer to withhold a portion of your paycheck from you as a collection on the defaulted loan. 

For federal loans in default, your loan holder can order your employer to withhold up to 15% of your discretionary wages without having to undergo a court order. Private lenders can sue you and request a court judgment to withhold some of your wages as a collection effort on the loan, too.

Check Out: How To Get Your Student Loans Out of Collections

Treasury offset

A Treasury offset is when the government withholds a federal payout from you because of a past-due debt, like a federal student loan. Examples of payouts that can be withheld include federal and state tax refunds, as well as Social Security payments. 

This outcome, however, doesn’t apply to defaulted private student loans. 

Loan acceleration

Borrowing a student loan and being able to repay the total balance over time is a privilege typically reserved for borrowers in good standing. 

If you never pay your student loans and they go into default, the entire unpaid balance (including your principal and owed interest), can become due immediately. This applies to both federal and private student loans.

Additional fees

You might incur various additional fees due to student loan default. For example, you might face collection fees, court fees, and attorney’s fees that are related to the debt collection process.

Lawsuits and judgments

If you continue avoiding your student loan payments, the loan holder or debt collector for the defaulted account can sue you in court. This process is not only time-consuming but can be costly. 

Note that federal loans don’t require a court order to enforce the consequences mentioned above. For defaulted private loans, each state has its own statute of limitations limiting how many years a lender or debt collector can sue a borrower to collect.

Ineligible for future federal financial aid and programs

A federal loan that’s fallen into default means you’ll no longer qualify for additional federal financial aid. You’ll also lose access to certain repayment plans, and deferment and forbearance programs.

Long-term effects of defaulting on student debt

Although never paying your loans has a long list of immediate consequences, it can also produce ongoing effects that last for years. For example: 

• Difficulty obtaining new credit: Since a student loan default impacts your credit record, you might have a hard time getting new credit, like a mortgage, car loan, or credit card. You may also struggle to pass a credit check for a rental agreement.
• Strained relationships with cosigners: If your original loan included a cosigner, the responsibility of a defaulted loan is now theirs to carry. This can potentially affect your relationship with that person. 
• Higher stress levels: Respondents in the Pew survey said that loan default took a negative emotional toll on them. Feelings of hopelessness, frustration, and stress surfaced as a result. 

How to avoid default

Consistently making your payments on time is the most effective way to prevent default. 

However, if you’re struggling, it’s a good idea to reach out to your lender or loan servicer as soon as possible. They can help you navigate repayment options that may provide some temporary or long-term relief.

Eligible federal loan borrowers can request deferment, forbearance, or an income-driven repayment (IDR) plan. For some borrowers, IDR payments could be as low as $0. 

For private student loans, ask your lender for guidance. Not all lenders are willing to adjust your repayment plan. However, it’s worth asking if simply changing your payment due date, for example, can help you avoid default.

Depending on your situation and eligibility, a student loan refinance may also help you alter your loan’s repayment terms. For example, you can extend your term for potentially lower monthly payments. Note that a credit check is needed, among other requirements, and you’ll likely pay more interest over time with a longer repayment period.

How to get back on track after default

Below are some options to help you move forward and eventually get out of student loan default.

Federal student loans

If you have a federal student loan in default, you have a few options available to you:

1. Repay the debt: The most straightforward option is repaying the debt in full, if you can afford it. Look at your budget and savings to ensure this is the right move for you.
2. Loan rehabilitation: This one-time option takes place over a 10-month period. Make nine voluntary, on-time, and reasonable payments within 20 days of the due date. After meeting the program’s criteria, the default record is removed from your credit report. However, loan rehabilitation has been temporarily replaced by the Fresh Start program through at least September 2024. Once that program ends, loan rehabilitation will become available again.
3. Fresh Start program: This is a one-time program that’s temporarily available to eligible borrowers with qualifying federally held loans. Some benefits include regaining access to federal student aid, affordable repayment plans, student loan forgiveness, and pausing collections.
4. Loan consolidation: This path involves combining your old defaulted loan balances into a new consolidation loan. You must either make three qualifying payments toward your defaulted loan before consolidation or enroll in an IDR plan to repay the consolidated loan.

Private student loans

There are no universal programs available to help defaulted private student loans get back on track. Although each lender operates differently, contact your lender to discuss the following options:

1. Negotiate your repayment plan: See if the loan holder is willing to modify your repayment requirements, like offering a lower monthly payment for a short period. Generally, lenders are willing to work with you to keep you out of default. However, there’s no guarantee they will accommodate your request.
2. Get free support: Consider seeking guidance from a nonprofit credit counseling organization, like the National Foundation for Credit Counseling (NFCC), which can work with creditors on your behalf, help you organize your finances, and create a manageable budget going forward.