What Happens If You Never Pay Your Student Loans? | Bankrate (2024)

Key takeaways

  • Not paying student loans could lead to late fees, a damaged credit score and wage garnishment.
  • You may qualify for a repayment or forgiveness plan to help bring your loans current and get rid of the debt sooner.
  • Student loan debt is only dischargeable in bankruptcy if you can prove it is causing an undue hardship.
  • Speak to your lender about affordable repayment alternatives if you struggle to keep up.

You can face dire financial consequences for failing to pay your student loans. Lenders will report the delinquency to the credit bureaus, which means your credit score will take a hit. Lenders could also sell the debt to a collection agency that decides to sue you in court. You’ll also have a harder time getting approved for future credit products with favorable terms. In some instances, you could face wage garnishment or have tax refunds withheld by the federal government.

If you’re experiencing financial difficulty and approaching student loan default, it’s worth reaching out to your lender to explore forms of relief that may be available to you.

What happens if you don’t pay student loans?

Whether it’s your student loan payments or any other debts, if you don’t make your monthly payments, your finances could take hits from multiple angles.

What happens if your student loans are delinquent?

Loans are considered delinquent immediately after one missed payment, but your lender or loan servicer might not report you as late to the major credit bureaus until you’re 90 days past due. You might face the following consequences after missing a few payments:

  • Credit score drop. The longer you go without paying your student loans, the more your credit score may tank.
  • Late fees. A late payment — one you eventually make but not by the due date — could result in a late payment fee. This amount varies by lender, and not all of them institute this fee, but it’s very common to see either flat late fees or fees that represent a percentage of your missed payment.

What happens if your student loans are in default?

After several months of missed payment – or once the account is 270 days delinquent – your loan will enter default. The specific timing and consequences of default vary by lender. In extreme cases, your student loan balance immediately comes due. Other potential consequences include:

  • Lost eligibility for future aid. If you’re currently in default, you could lose out on any future student aid, including scholarships, grants and federal student loans. Defaulted loans on your credit report could also make it harder to buy a home, buy a car or take out a credit card.
  • Potential lawsuits. Your original lender could sell your loan to a debt collection agency, which can call and send you letters in an attempt to collect a debt.

What happens if you never pay your student loans?

If a considerable amount of time passes and you still haven’t made student loan payments, here’s what could happen.

  • Withheld tax refund. The government could withhold your refunds and apply it to your student loan debt until you’re current on payments.
  • Wage garnishment. Your lender might make moves to garnish your wages and apply them to your outstanding balance — sometimes up to as much as 25 percent of your disposable income. It can do this until you’ve paid back a portion of your loans and are in good standing.

How to get rid of student loans

If you’re struggling to repay your student loans, different repayment and forgiveness plans can help you keep your loans current without breaking the bank. Consider all of your options before choosing the best plan for your needs.

Apply for a payment refund

Borrowers who made federal student loan payments during the student loan forbearance period (starting March 13, 2020) may be eligible to get a refund on those payments.

Those who think they’re eligible for a refund must call their student loan servicer and tell a representative they’re interested in getting a refund on non-required payments made during the payment pause. Remember, however, that payments will still be due eventually, even if you get a refund.

Income-driven repayment plan

If you’re struggling to repay your student loans, you can enroll your federal loans into an income-driven repayment plan. A few different repayment options exist, including the new SAVE Plan. You can pick the one that meets your needs the best.

With each plan, you’ll make monthly payments based on your discretionary income and family size. After 20 or 25 years, depending on the plan, the remaining balance on your loans is forgiven. But if you are eligible for the SAVE plan and have a principal balance of less than $12,000, you could qualify for forgiveness in just 10 years (or after 120 payments). You’ll need to update your information every year so your payments accurately reflect your financial situation.

Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness is available for federal student loan borrowers seeking a public service career. Your remaining debt is forgiven after 10 years of making payments on an income-driven repayment plan and working for an eligible employer.

Debt snowball or debt avalanche

You might want to consider a different approach if you have a mix of federal and private student loans or many different loans. Debt elimination plans, like the debt snowball or debt avalanche, might help you chip away at your student loan debt faster.

With both debt elimination methods, you list each debt, including the total amount you owe, your monthly payment, the interest rate and the due date. Next, make minimum payments on all your loans.

Here’s where the strategy starts to differ.

  • For the snowball method, apply every spare dollar toward the debt with the lowest balance.
  • For the debt avalanche method, put every spare dollar toward the debt with the highest interest rate.

Repeat your chosen action until you pay off the first debt on your list. Then, move on to the next-smallest debt (or the one with the next-highest interest rate) and repeat the process until all of your student loans are paid in full.

Refinancing

If you have high interest rates or many different student loans, you might want to consider refinancing. Refinancing is the process of taking out a new loan to pay off all of your current student loans. You’ll get new repayment terms and a new interest rate, then make one monthly payment to your refinanced loan until it’s paid in full.

You can only refinance your loans with private lenders, so proceed cautiously. Refinancing federal loans means you’ll lose certain benefits, like forbearance, forgiveness or the option to enroll in an income-driven repayment plan. But if you have great credit and can get a lower interest rate than what you’re paying now, refinancing might make sense in certain situations.

Student loan settlement

Student loan settlement happens when you settle your student loans for less than what you owe. This option might benefit you if you’re far behind on your student loans and your credit score has already suffered.

You’ll need a lump-sum amount to pay off the outstanding settled balance, and lenders aren’t required to settle. Yet some lenders are willing to consider settling for less if it helps them collect a significant portion of your unpaid debt.

Can you discharge student loans in bankruptcy?

The U.S. Bankruptcy Code allows student loans to be discharged if borrowers demonstrate that not doing so will be an “undue hardship.” However, proving an undue hardship is difficult. Borrowers must meet the three guidelines of undue hardship, which is called the Brunner test:

  • You can prove that if forced to repay the loan, you could not maintain a minimal standard of living.
  • You demonstrate that the hardship will continue for much of your loan repayment period.
  • You made good-faith efforts to repay the loan before you filed for bankruptcy.

It’s technically possible to discharge student loans in bankruptcy, and there are currently attempts in the House and Senate to make discharging federal and private student loans easier. However, you should realize that it will be an uphill battle to prove that repaying your student loans will impose an undue hardship on you.

The bottom line

Not paying back your student loans can cause catastrophic results for your finances, your credit and your future borrowing prospects, so do your best to stay current on your loans.

If you’re struggling, look into federal forgiveness and refund options, find a repayment plan that works for you or refinance your loans. Not paying back your student loans will hurt you for years to come, so the best course of action should be the one that gets you back on track.

Frequently asked questions

  • While negative information about your student loans may disappear from your credit reports after seven years, the student loans will remain on your credit reports — and in your life — until you pay them off. The only way to make your student loan debt go away is to apply for forgiveness and, if necessary, take advantage of the alternative repayment options to help you pay the remaining balance.

  • Student loans are a form of unsecured debt not backed by collateral. So, your home or car cannot be seized if you fail to make payments. (Note: If you have private student loans, your assets could be at risk if the lender sues you in court and the judge rules in favor of them taking your assets to recoup what’s owed).

  • Yes, mortgage lenders review your student loan payment history when you apply for a home loan. It’s a part of their review of your credit profile and could influence the lender’s decision.

What Happens If You Never Pay Your Student Loans? | Bankrate (2024)

FAQs

What happens if you just don't pay your student loans? ›

If you default on your student loan, that status will be reported to national credit reporting agencies. This reporting may damage your credit rating and future borrowing ability. Also, the government can collect on your loans by taking funds from your wages, tax refunds, and other government payments.

Will unpaid student loans ever go away? ›

Do student loans go away after 7 years? While negative information about your student loans may disappear from your credit reports after seven years, the student loans will remain on your credit reports — and in your life — until you pay them off.

How long do you go to jail for not paying student loans? ›

No, you can't go to jail for not paying your student loans. So if that was a fear you had, take a deep breath—no one is coming to arrest you if you miss a payment. But like we mentioned, you can be sued over defaulted student loans. This would be a civil case—not a criminal one.

How many people never pay back their student loans? ›

About 5% of student debt was at least 90 days delinquent or in default in the fourth quarter of 2021.

Can I just ignore my student loans? ›

Failing to pay your student loan within 90 days classifies the debt as delinquent, which means your credit rating will take a hit. After 270 days, the student loan is in default and may then be transferred to a collection agency. Keeping up with your student loan payments helps improve your credit score.

How long can you go without paying student loans? ›

Loan servicers will report the delinquency to the three national credit bureaus if a payment is not made within 90 days. A loan goes into default after a borrower fails to make a payment for at least 270 days, or about nine months, which can result in further financial consequences.

Can student loans take my house? ›

When you fall behind on payments, there's no property for the lender to take. The bank has to sue you and get an order from a judge before taking any of your property. Student loans are unsecured loans. As a result, student loans can't take your house if you make your payments on time.

At what age do student loans get written off? ›

How long before a student loan is written off? Unlike in the UK, where student loans are written off after 30 years, the US Department of Education does not automatically write off federal loans after any set period. Without a statute of limitations, borrowers can find themselves stuck paying debts until their death.

What is the 7 year rule for student loans? ›

Typically, a defaulted debt, including student loan debt, will be taken off your credit report 7 years from the date of the first missed payment.

Can student loans be bankrupted? ›

You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an "adversary proceeding," requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

How many student loans go unpaid? ›

How Many People Are Currently in Default on Their Student Loans? By the end of 2021, roughly 3 million people were in student loan default — that's about 7% of all borrowers.

Can you stay in school forever to not pay student loans? ›

A federal student loan borrower can, in theory, be in an in-school deferment indefinitely. They would need to be enrolled in college on at least a half-time basis. However, paying for college will be a challenge, as student financial aid is limited.

Do you get in trouble for not paying student loans? ›

No, you can't be arrested or put in prison for not making payments on student loan debt. The police won't come after you if you miss a payment. While you can be sued over defaulted student loans, this would be a civil case — not a criminal one. As a result, you don't have to worry about doing any jail time if you lose.

What are 3 effects of not paying back student loans? ›

It may take years to reestablish a good credit record. You may not be able to purchase or sell assets such as real estate. Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”). Your wages may be garnished.

What happens if I haven't paid student loans in 10 years? ›

Acceleration and Wage Garnishment: Once in default, the entire unpaid balance and interest are immediately due (acceleration). Your wages can be garnished without a court order, and tax refunds or Social Security benefits may be seized.

What happens if you never earn enough to repay student loans? ›

If you stop working, or start to earn below the repayment threshold, your repayments will stop until you earn over the threshold. You'll make a repayment if you go over the weekly or monthly threshold at any point during the year, for example, if you get a bonus or work overtime.

What happens to student loan money you don't use? ›

Students in this situation may wonder “what happens if I don't use all of my student loan?” In most cases, colleges will refund the money to the student. Continue reading to learn more about what happens to unused student loans so you avoid taking only what you need to be a successful student.

Do unpaid student loans affect your credit? ›

Actually, there are hundreds of different types of credit scoring models, but the best known one is probably the FICO® score. This makes up the lion's share of your score and relies on your making on-time payments. Late or missed payments, such as for your student loan, will negatively affect your score.

Do I have to pay student loans if I didn't finish? ›

REMEMBER: Your federal student loans can't be canceled or forgiven because you didn't get the education or job you expected or you didn't complete your education (unless you couldn't complete your education because your school closed).

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