Here’s What Happens if You Don’t Pay Your Student Loans

What happens if you don't pay student loans

In today’s world, most of us are bogged down by student loan debt. In fact, the average American has over $39,000 worth of student loan debt in 2021, according to data from the Education Data Initiative.  However, while paying off that amount of debt can be hard, the consequences of not paying it can be even more difficult to bear. If you want to learn more about what happens if you don’t pay your student loans, keep reading. We’ll walk you through what happens from your first missed payment onward.

What happens if you miss a payment on your student loans?

If you have student loans in your name, it’s important to always pay the amount shown on your bill by the due date. If you miss a payment or do not pay the amount owed, your loan will become delinquent. Delinquency lasts from the day after your missed payment until the time when you either bring your account current or make other arrangements with your loan servicer, such as deferment or forbearance. 

Unfortunately, if your account remains delinquent for more than 90 days, your loan servicer is within their rights to report your delinquency to the credit bureaus. At that point, the delinquency will begin to impact your credit score. According to FICO’s credit damage data, a delinquency of 90 days or more can drop your score by as much as 150 points, depending on your credit history and the late payment information.

What happens if you default on student loans?

Once your loan goes into default, the stakes get even higher. Federal student loans usually go into default 270 days after your first missed payment. However, private student loans can go into default as soon as 90 days after the first missed payment. 

Regardless of when your student loans are considered to be in default, it’s important to realize that you could be facing some major consequences if you continue not to make your payments. We’ve laid out some of the possibilities for you below.

  • The entire balance of your loan, including interest, could become due immediately if there is an acceleration clause in your student loan agreement.
  • You could lose eligibility for deferment or forbearance options.
  • You could lose eligibility for future student aid. 
  • Your credit rating may be impacted, which can make it more difficult to do things like become approved for an apartment or purchase a new car.
  • Tax refunds or federal benefits may be withheld and put towards your student loan balance.
  • Wages may be garnished, which means your employer may be required to hold back a portion of your paycheck and send it to your loan servicer.
  • Your lender can take you to court and sue you. If they win, you may be charged with the costs associated with collection in addition to your loan balance and any interest charges.
  • Your school may withhold your academic transcripts from you until the loan is satisfied. (Notably, the decision to do so is up to the discretion of the educational institution itself and your loan servicer has no control over it.)

What happens if you never pay your student loans?

In truth, the longer you go without paying your student loans, the more severe the consequences become. However, whether or not these debts expire with time depends on which type of loans you have taken out. Unlike most other types of debt, federal student loans are not subject to a statute of limitations, which means they never expire. Private student loans, on the other hand, are usually subject to the statute of limitations in either the state where you currently live or the state where you took out the loan.

In New York, the statute of limitations is six years on consumer debt. However, it’s important to be aware that you can restart the clock on your statute of limitations if you make even a single payment or if you agree to it as a condition of a repayment plan. 

Once the statute of limitations passes, it means that your lender can no longer sue you to attempt to collect the debt that you owe. Stll, even if you can no longer be taken to court, you are still obligated to repay it, which often means that you’ll still be at risk for getting calls or other correspondence from debt collectors.

The bottom line on what happens if you don’t pay your student loans 

The bottom line is that, even if you resolve never to pay your student loans, they’re likely going to be an ongoing problem. A better option might be to pursue a debt relief program to resolve your student loan debt once and for all. At its core, debt relief – which can include debt settlement – involves negotiating with your loan servicer in order to get them to agree to accept an amount that’s less than the total of what you currently owe. 

If you think that pursuing a debt settlement might be the right option for you, Tayne Law Group can help. Call us at (866) 890-7337, or fill out our short contact form, and we’ll respond as soon as possible. We provide a free consultation to anyone who thinks they might benefit from our services.

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