What happens if you never pay your student loans?

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If you never pay your student loans, your credit score will drop, you’ll have a harder time taking out future credit and you may even be sued by your lenders. The short- and long-term consequences of not paying your student loans can be painful, so it’s essential to pay your student loans on time or seek help if you’re experiencing financial difficulty. Here’s what to know if you’re approaching student loan default.

Key takeaway
Not paying student loans could lead to late fees, a damaged credit score, wage garnishment and more. Speak to your lender about repayment alternatives if you’re struggling to keep up.

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. Here’s what could happen if you never pay your student loans.

The short-term consequences

When you’re even one day late on your student loans, you’re immediately considered delinquent. If you miss a few payments, you might face consequences such as:

  • 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.
  • Withheld tax refund. If you fall behind on federal student loans, the government could withhold your refund until you’re up to date on payments.
  • Wage garnishment. If you’re a few months behind on your student loans, your lender might make moves to garnish your wages — 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.

The long-term consequences

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. Here’s what can happen the longer you don’t pay your student loans:

  • Default. After several months of missed payments, your loan will enter default. The specific timing and consequences of default vary by lender. In extreme cases, the entirety of your student loan balance immediately comes due.
  • 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.
  • Credit score drop. The longer you go without paying your student loans, the more your credit score may tank.
  • 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. To garnish wages, lenders will need to go through court. You could get sued if you don’t repay your loans.

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 themselves will remain on your credit reports — and in your life — until you pay them off. In very rare circumstances, you may be able to get rid of your student loans through bankruptcy, but in general, the only way to make your loans disappear is to finish repayment.

How to get rid of student loans

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

Income-driven repayment plan

If you’re struggling to afford repaying your student loans, you can enroll all of your federal loans into an income-driven repayment plan. There are a few different repayment options based on your needs, but they all have similar methods.

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. 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 who go into a public service career. After 10 years of making payments on an income-driven repayment plan and working for an eligible employer, your remaining debt is forgiven.

The Biden administration recently announced sweeping changes to the Public Service Loan Forgiveness program. The pending changes aim to make it easier for borrowers to qualify for this federal student loan forgiveness plan, so now is the time to enroll if you’ve been considering it.

Debt snowball or debt avalanche

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

With both of these debt elimination methods, you begin by listing out 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 you have 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.

Note that you can only refinance your loans with private lenders, so proceed with caution. Refinancing federal loans that means you’ll lose certain benefits, like forbearance 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. If you’re far behind on your student loans and your credit score has already suffered, this option might benefit you.

Keep in mind that 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 for student loans to be discharged if borrowers can demonstrate that not doing so will be an “undue hardship.” However, proving an undue hardship has been shown to be 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 it will be an uphill battle to prove that repaying your student loans will impose an undue hardship on you.

Will student loans be forgiven?

President Biden mentioned the possibility of student loan forgiveness during his campaign. Yet so far, his administration has focused on revising existing forgiveness programs, not implementing a one-time forgiveness for all. As a result, it’s critical to keep making payments on your loans.

Even if some form of forgiveness does come down the line, you shouldn’t wait for it; making payments on your loans ensures that you don’t end up in default in the meantime. And remember, federal student loan borrowers aren’t required to make payments until after Jan. 31, 2022, so you do have some breathing room if you’re currently struggling.

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, find a repayment plan that works for you, like an income-driven repayment plan, 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.

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
Student loans editor