What Happens If You Don’t Pay Student Loans for 2025?

Student Finance & Loan Expert

Student loans play a crucial role in financing higher education, but navigating repayment can be a complex endeavor. For many borrowers, the potential consequences of delinquency on these loans remain unclear.

This article will provide a comprehensive overview of the repercussions associated with failing to meet student loan obligations. We will explore a variety of strategies and resources available to assist borrowers in maintaining good standing and avoiding default.

By understanding the potential pitfalls and the available support systems, borrowers can make informed decisions to ensure a smooth and successful repayment journey.

What You Should Know About Not Paying Student Loans

Do not wait until you default to seek help. There are resources available to help you manage your debt and avoid the negative consequences. Start by contacting your loan servicer.
For federal loans, the Department of Education offers loan rehabilitation. By completing a series of on-time payments under a rehabilitation plan, you can bring your loans out of default and regain eligibility for federal benefits like income-driven repayment and potential forgiveness programs.
For private loans, while a standardized rehabilitation program might not be available, you can still contact your private loan servicer to discuss repayment arrangements and potentially work towards getting the default removed from your credit report after a period of successful repayment.

What happens if I miss a student loan payment?
How long does it take for a student loan to go into default?
What are my options if I'm struggling to make student loan payments?
What are the consequences of defaulting on student loans?
What is the difference between deferment and forbearance?
How long can you defer student loans?
How do Grad PLUS Loans impact my credit score?
Can I get forbearance for federal student loans?
Can I get student loan forgiveness if I defaulted on my loans?
Can student loan refinancing help me avoid default?
Using Student Loans for College Living Expenses
How fast can you get student loans?
Are there specialized funding options for professional education?
Are online degree options a cost-effective alternative to traditional education?
Can alternative education options reduce my need for student loans?
How can I rebuild your credit score after default?
Can income-driven repayment plans help prevent student loan default?
Can an accelerated online masters degree enhance my financial recovery?
Can you discharge student loans in bankruptcy?
Other Things You Should Know If You Don't Pay Student Loans

What happens if I miss a student loan payment?

Roughly four million student loans enter default each year. Missing a student loan payment can have several consequences, depending on the severity and duration of the delinquency. The most immediate consequence is typically a late fee, charged by your loan servicer for missing the due date. This fee can vary depending on the lender, but it is often a flat fee or a percentage of the missed payment amount.

After a certain period of delinquency (usually 90 days or more for federal loans), your missed payments will be reported to credit bureaus. This can significantly lower your credit score, making it harder and more expensive to borrow money in the future.

If you miss payments for an extended period (typically 270 days or more for federal loans), your loan will go into default. Aside from encountering loan repayment issues, defaulting on your student loan payment has even more serious consequences, including:

Wage Garnishment: The government can garnish a portion of your wages to repay the debt.
Tax Refund Seizure: The government can withhold your tax refunds to apply them to the defaulted loan.
Collection Agencies: Your loan may be transferred to a collection agency, which can aggressively pursue repayment and add additional fees.
Loss of Eligibility for Benefits: You may lose eligibility for future federal student aid and some loan repayment programs.

What happens if you don't pay student loans does not immediately destroy your status as a borrower. There are stages before you reach default. The key lies in maximizing all available options so you can keep your good credit standing.

Approximate number of student loans that enter default each year

How long does it take for a student loan to go into default?

Based on student loan debt statistics, 25% of students defaulted within five years of repayment. The timeframe for a student loan to default depends on the type of loan.

Federal Student Loans: For most federal student loans, default occurs after 270 days (or nine months) of missed payments. There's an exception for Federal Perkins Loans, which can default if you miss the very first scheduled payment.
Private Student Loans: Private lenders typically have stricter timelines. Default on private loans can occur after as few as 90 days (or three months) of missed payments.

It is important to remember that missing a payment triggers a delinquency status. Delinquency precedes default, and during this period, your loan servicer will likely reach out to you to try and collect payment. They are required by law to make "due diligence" efforts before default occurs.

What are my options if I'm struggling to make student loan payments?

The average federal student loan debt held as of the second quarter of 2024 is $37,853. If you are struggling to make your student loan payments, there are several options available to help you manage your debt:

Income-Driven Repayment (IDR) Plans: Offered by the federal government, this plan adjusts your monthly payment amount based on your income and family size. This can significantly lower your payments, making them more manageable.
Deferment and Forbearance: These are temporary postponements or reductions in your monthly payments. Deferment is typically granted for specific situations like enrollment in school or military service, while forbearance can be requested due to financial hardship. Interest may still accrue on your loans during deferment or forbearance, depending on the program.
Loan Consolidation: Consolidating your loans combines multiple federal loans into a single loan with one monthly payment. While consolidation does not necessarily lower your total repayment amount, it can simplify your repayment process and potentially extend your repayment term.
Contact Your Loan Servicer: It is crucial to communicate with your loan servicer as soon as you anticipate difficulty making payments so you know what happens if you don't pay student loans. They can explain your options, discuss hardship programs, and help you find a solution that works for your situation. This is also to effectively address other repayment concerns.
Explore Loan Forgiveness Programs: Depending on your career path, there might be loan forgiveness programs available. For example, some programs forgive student loan debt for public service workers like teachers and nurses after a certain period of qualified employment. Research these programs and see if you qualify based on your current student loan debt.

What are the consequences of defaulting on student loans?

The incomes of the majority (65%) of borrowers who default within 12 years of starting college were below 200% of the federal poverty level for their family size as they entered school. Defaulting on student loans can have a significant negative impact on your financial well-being. Here are some possible consequences:

Damaged Credit Score: Missed payments and defaults will be reported to credit bureaus, severely damaging your credit score. This can make it difficult and expensive to borrow money in the future, impacting everything from car loans and mortgages to renting an apartment or getting approved for utilities.
Wage Garnishment and Tax Seizure: To recoup the debt, the government can garnish a portion of your wages or withhold your tax refunds. This can significantly strain your budget and leave you with less money to make ends meet.
Collection Agency Involvement: Your defaulted loan may be transferred to a collection agency. These agencies can be aggressive in their collection efforts, which can be stressful and disruptive.
Loss of Eligibility for Benefits: You may lose eligibility for future federal student aid, including grants and loans, which can limit your educational opportunities. This might also affect other loan repayment programs.
Lawsuit and Additional Fees: The loan servicer can sue you to recover the debt, leading to court costs and judgments. Defaulted loans can also accrue additional late fees and penalties, further increasing your debt burden.

The consequences of default can linger for years, hindering your ability to achieve financial goals like buying a house, starting a business, or saving for retirement. What happens if you don't pay student loans can also have a psychological impact, causing stress and anxiety about your financial situation.

What is the difference between deferment and forbearance?

As of 2022, more than 50% of debtors (25.5 million) have loans in forbearance, while 2.8 million borrowers are in deferment. Deferment and forbearance are both options for federal student loan borrowers who are facing temporary financial hardship and struggling to make their monthly payments. However, there are some key differences between the two.

Deferment is the better option if you qualify and have subsidized loans, as it can help you avoid additional interest charges. Forbearance is a broader option that can provide temporary relief during any financial hardship, but it will always increase your loan balance due to accruing interest.

Deferment

Interest Accrual: In some cases, interest does not accrue on subsidized federal loans during deferment. This can be a significant benefit, as it helps you avoid adding to your overall loan balance. However, unsubsidized federal loans and all private loans will continue to accrue interest during deferment.
Eligibility: Deferment is typically granted for specific qualifying events, such as enrolling at least half-time in an eligible school, serving in the military, experiencing unemployment or economic hardship, Peace Corps or AmeriCorps service, or having a medical residency or internship.

Forbearance

Interest Accrual: Interest always accrues on all types of loans during forbearance. This means your loan balance will continue to grow even while you're not making payments.
Eligibility: Forbearance is generally easier to qualify for than deferment. You can request forbearance due to a wider range of financial hardships, and there may be less strict documentation requirements. However, the decision to grant forbearance ultimately lies with your loan servicer.

How long can you defer student loans?

The total amount of time you can defer federal student loans depends on the specific reason for deferment. Most deferment categories allow for deferment periods of up to 12 months at a time. You can typically renew your deferment for as long as you qualify for the specific reason. However, there are some exceptions:

Teacher Service Deferment: This allows for deferment for up to five consecutive years while employed as a full-time teacher in a designated low-income elementary or secondary school.
Military Service Deferment: This can cover the entire period of active duty service, plus an additional grace period after returning to civilian life.

It is crucial to check with your loan servicer to confirm the exact deferment duration for your specific circumstances and loan type. Even though interest may not accrue on subsidized loans during deferment, it will still accrue on unsubsidized loans and all private loans.

How do Grad PLUS Loans impact my credit score?

Grad PLUS loans cater specifically to graduate and professional students, and their timely repayment is integral to maintaining a favorable credit profile. Missed or delayed payments can trigger negative reports to credit bureaus, further complicating borrowing prospects. It is important for borrowers to monitor their repayment progress and understand how these loans interact with overall credit management. For more detailed insights on assessing eligibility and managing credit implications, please refer to grad plus loan credit score.

Can I get forbearance for federal student loans?

Yes, you can definitely get forbearance for federal student loans. In fact, forbearance is generally easier to qualify for compared to deferment which makes it a good option for approximately 43.4 million student loan recipients who had $1.63 trillion in outstanding loans as of June 2023.

Eligibility

Forbearance can be granted due to a wider range of financial hardships compared to deferment, which has specific qualifying events. This means you might be eligible for forbearance even if you wouldn't qualify for deferment.

The requirements for documentation to prove hardship may be less strict for forbearance compared to deferment. However, your loan servicer will still need to assess your situation, so be prepared to provide some documentation to support your request.

Interest Accrual

A key difference between deferment and forbearance is that interest always accrues on your loans during forbearance, regardless of the loan type (subsidized or unsubsidized). This means your loan balance will continue to grow even while you are not making payments.

Due to accruing interest, forbearance can be a more expensive option compared to deferment in the long run. Forbearance, like deferment, is a temporary solution. It provides short-term relief but doesn't eliminate your debt. You will need to resume payments after the forbearance period ends.

Can I get student loan forgiveness if I defaulted on my loans?

The answer to this depends on the specific type of student loan forgiveness program you're considering.

Federal Loan Forgiveness Programs

Most federal loan forgiveness programs, like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness, require you to be in good standing repayment to qualify. You typically need to make a certain number of on-time monthly payments under a qualifying repayment plan. As of July 2023, approximately 662,000 borrowers have qualified for forgiveness under the limited PSLF waiver.

There is a possibility to get back on track for forgiveness programs after default. The Department of Education offers a program called loan rehabilitation. By completing a series of on-time monthly payments under a rehabilitation plan (typically 9 on-time payments within a 6-month period), you can bring your defaulted loans out of default and potentially become eligible for forgiveness programs again.

Private Loan Forgiveness

Private lenders rarely offer forgiveness programs, even for defaulted loans. You will need to verify with your private loan servicer to determine whether they have any available options. However, consolidation with federal loans and pursuing rehabilitation might be a path to explore forgiveness programs offered by the government.

Borrowers who qualified for forgiveness under the limited PSLF waiver

Can student loan refinancing help me avoid default?

Student loan refinancing can present an effective strategy for borrowers seeking improved repayment terms and reduced default risk. This option may lower interest rates, consolidate multiple loans, and ultimately decrease monthly payment obligations. Careful evaluation of lender terms and eligibility criteria is essential to ensure that refinancing aligns with individual financial goals. For borrowers considering advanced education to further enhance income potential and manage debt more effectively, explore what is the easiest doctorate to get as one of the factors in your decision-making process.

Using Student Loans for College Living Expenses

While student loans are often associated with funding tuition costs, they can also cover essential living expenses for college students. These expenses might include housing, food, transportation, and even basic utilities, depending on the terms of your loan. Understanding how to maximize your loan efficiently for these needs is essential to avoid over-borrowing while ensuring you have the resources to focus on your education.

Federal student loans typically disburse funds directly to your college to cover tuition and fees, with any remaining amount refunded to you for other expenses. Private student loans may offer more flexibility but often require good credit or a co-signer for approval. To fully utilize student loans to manage both academic and living costs, it’s crucial to create a detailed budget and accurately project your monthly expenses. This not only ensures proper allocation of borrowed funds but also minimizes unnecessary debt accumulation.

To dive deeper into this topic and understand your options for covering living expenses, this guide Can you take out a student loan for living expenses? provides comprehensive insights, including actionable strategies for managing student loans effectively.

How fast can you get student loans?

For borrowers facing urgent financial needs, certain lenders provide expedited student loan solutions with a streamlined application process and rapid disbursement timelines. Evaluating these options requires a careful review of eligibility criteria, necessary documentation, and the lender’s approval procedures—all of which can significantly affect the speed at which funds are released. By understanding these factors, you can better plan for unexpected financial emergencies and ensure that your academic progress remains uninterrupted. For more detailed insights on expedited funding options, please check how fast can you get student loans.

Are there specialized funding options for professional education?

Students pursuing advanced professional programs often face financial challenges that standard student loans may not fully address. Specialized loan products from select lenders can offer tailored features such as deferred repayment options, lower interest rates, and flexible grace periods designed to match the career trajectories of professionals. For example, prospective dental students can explore options like loans for dental school to secure funding that meets the high costs associated with dental education. Evaluating these specialized products against traditional financing methods is crucial to ensure you secure optimal terms that align with your long-term career and financial goals.

Are online degree options a cost-effective alternative to traditional education?

Evaluating online programs can reveal opportunities for reduced tuition costs and accelerated degree completion without sacrificing academic quality. Prospective students should consider long-term financial benefits by comparing program structures, fees, and support services. Analyzing factors such as program flexibility and overall cost–benefit balance can lead to more informed decisions regarding enrollment. In this context, reviewing the cheapest online degree completion programs may uncover viable, budget-friendly alternatives to traditional campus-based education.

Key Findings

The incomes of 65% of borrowers who defaulted within 12 years from the start of college year were below 200% of the federal poverty level for their family size when they enrolled in school.
Based on student loan debt statistics, 25% of students defaulted within 5 years of repayment.
As of 2022, more than 50% of debtors (25.5 million) have loans in forbearance, while 2.8 million borrowers are in deferment.
The average federal student loan debt held as of the second quarter of 2024 is $37,853.
Approximately 43.4 million student loan recipients had $1.63 trillion in outstanding loans as of June 2023.

Can alternative education options reduce my need for student loans?

Exploring alternative education options can help minimize reliance on student loans by offering cost-effective and flexible pathways to a degree. By comparing traditional campus-based programs with reputable online degree programs, borrowers can assess factors such as tuition costs, program duration, and post-graduation employment outcomes. This analysis empowers prospective students to make informed decisions that align academic ambitions with long-term financial sustainability.

How can I rebuild your credit score after default?

Rebuilding your credit after a student loan default requires a strategic approach. Begin by verifying your credit report for errors and addressing any discrepancies with the relevant credit bureaus. Establish a realistic repayment or rehabilitation plan with your loan servicer to ensure that on-time payments are reported to the credit bureaus. Consider engaging a non-profit credit counseling service that can provide personalized strategies for improving your financial standing. Additionally, diversifying your income through higher education can offer a pathway to enhanced earning potential; for instance, obtaining a highest-paying master's degree might result in stronger financial prospects, which in turn facilitates credit repair. Consistent, documented financial discipline over time and periodic monitoring of your credit profile are essential in gradually restoring your credit health.

Can income-driven repayment plans help prevent student loan default?

Income-driven repayment (IDR) plans adjust your monthly payments based on your income and family size, helping maintain affordable obligations and reducing the risk of default. These plans can offer significant relief during financial hardships and act as a preventive measure by aligning your repayment schedule with your current financial capacity. Additionally, evaluating various repayment options, including IDR, is essential to ensure your long-term financial stability while managing your student loan debt effectively. For cost-efficient educational alternatives that complement such strategies, consider exploring cheap online colleges that accept FAFSA in California.

Can an accelerated online masters degree enhance my financial recovery?

Pursuing an accelerated online masters program can provide a focused pathway to improve earning potential and expedite financial recovery. Advanced education in a streamlined format may help you gain industry-relevant skills faster, positioning you for better career opportunities and a more robust income stream. This strategic educational approach could offer a practical solution for managing current financial obligations and reducing the risk of future defaults.

Can you discharge student loans in bankruptcy?

Discharging student loans through bankruptcy is a challenging but not impossible process. Unlike other unsecured debts, student loans are treated differently in bankruptcy proceedings. To have your student loans forgiven, you must prove that repaying them would cause "undue hardship" for you and your dependents. This standard is known as the Brunner Test, which requires demonstrating that:

You cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans.
Your financial condition is unlikely to improve in the foreseeable future.
You have made good faith efforts to repay the loans.

Meeting these criteria is difficult, and most bankruptcy courts require substantial evidence to support your claim. Legal assistance is often necessary to navigate this complex process successfully. Additionally, the type of student loan—federal or private—can influence the likelihood of discharge.

If you are considering this route, it’s essential to explore all other options first. Programs like flight training student loan can provide alternative financing solutions that may prevent the need for bankruptcy. Consulting with a financial advisor or a bankruptcy attorney can help you understand the best course of action based on your unique financial situation. Remember, declaring bankruptcy can have long-term implications on your credit score and financial health, so it should be approached with careful consideration and professional guidance.

Other Things You Should Know If You Don't Pay Student Loans

What collection actions can lenders take for unpaid student loans?

If you default on your student loans (federal or private), lenders can take a series of aggressive collection actions to recoup the debt.

Your defaulted loan will likely be transferred to a collection agency. These third-party collectors can be persistent and use various tactics to pressure you into repayment. This may include frequent phone calls, emails, and letters demanding payment.

For federal student loans, the government has the authority to garnish a portion of your wages without a court order. This means they can take a percentage of your paycheck to repay the debt. The government can also withhold your tax refunds to apply them toward your defaulted student loan balance.

The lender or collection agency can sue you to recover the debt, leading to court costs and judgments. Defaulted loans can also accrue additional late fees and penalties, further increasing your debt burden.

What are the steps I need to take once I miss a payment?

As soon as you realize you have missed a payment, contact your loan servicer. They may be able to offer options to help you get back on track.

Explore Deferment or Forbearance: If you are facing temporary financial hardship, you might qualify for deferment or forbearance, which can temporarily suspend or reduce your payments.
Consider Changing Repayment Plans: For federal loans, income-driven repayment plans can adjust your monthly payment based on your income, potentially making payments more manageable.
Make a Payment Arrangement: If you are unable to pay the full amount, see if your loan servicer can work out a payment plan to catch up on missed payments.
Monitor Your Credit: Keep an eye on your credit report to understand the impact of missed payments and to catch any errors that could further damage your credit.

How to Apply for Forbearance or Deferment

The process for requesting forbearance involves contacting your loan servicer and explaining your financial hardship. They will guide you through the application process and determine if you qualify.

The required documents might vary depending on your loan servicer and the reason for requesting forbearance or deferment. However, some common documents include:

A completed application form (usually provided by your loan servicer)
Proof of hardship (for forbearance requests) such as medical bills, pay stubs, or a letter from your employer
Documentation of your qualifying event (for deferment requests) such as a military deployment order or school enrollment verification

Once you have gathered the necessary documents, complete the application form provided by your loan servicer and submit it along with the supporting documents. You can usually submit applications online, by mail, or by fax.

What other alternatives do I have aside from loan forgiveness?

If you are not eligible for forgiveness programs due to default, there are still options to manage your debt:

Income-Driven Repayment (IDR) Plans: These plans can significantly lower your monthly payments based on your income, making them more manageable.
Consolidation: Consolidating your loans can simplify repayment and potentially extend your repayment term, lowering your monthly payment.
Loan Repayment Assistance Programs: There might be programs offered by your state or specific professions that can help with student loan repayment.

Remember, even though forgiveness might not be readily available in default, it is crucial to address your defaulted loans to avoid the long-term consequences and explore alternative options for managing your student debt.

References: