What Happens If I Don’t Pay My Student Loans Back?

Danika McClure
Student Loans
Reading Time: 5 minutes

If you’re struggling to make your monthly student loan payments, you’re not alone. According to recent studies, on average, over 3,000 Americans default on their student loans each day.

The Consumer Federation of America’s analysis, which came out March of 2017, indicates that 42.4 million Americans have amassed over $1.3 trillion in federal student loans. 4.2 million of those individuals were in default at the end of 2016, up from 3.6 million the previous year.

Unfortunately, there can be severe consequences for those who are unable to make their student loan payments or let their accounts go into default.

What Happens if You Don’t Pay Your Federal Student Loans?

It’s important to understand the consequences you can face should you be unable to make your student loan payments each month. There is an important difference to note, however, between student loan delinquency and student loan default.

What Does Delinquency Mean, and How Does it Affect You?

Student loan delinquency is a common occurrence, as it happens the first day after you miss a payment. The delinquent status doesn’t change until you repay the past due amount, even if you only miss one month of payments. In order to get this delinquency status resolved, you must pay the overdue balance, or you can look into making other arrangements with your lender, such as deferment or forbearance, or changing your repayment plans.

Being delinquent for too long on your student loans, however, can cause severe consequences.

“If you are more than 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus,” note the financial aide experts at studentaide.loan.gov. “This will lower your credit score and negatively affect your finances.”

Poor credit ratings can affect a number of things moving forward, making it more difficult to obtain credit cards, home and car loans, finding credit approval for apartments, obtaining a cell phone plan, or being approved for homeowners’ insurance.

What is Student Loan Default and How Might it Affect Me?

If your loan is delinquent for a significant amount of time, the loan has a chance to go into default. This is all dependent on the type of loan you received from your lender.

“For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months),” according to studentaide.loan.gov. “For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by the due date.”

Unlike delinquency, however the consequences for defaulting on your student loans can be quite severe.

According to the previously referenced student aide page, should you happen to default on your student loans the ramifications can include:

  • Acceleration, which in essence means that your loan and any interest become immediately due
  • You may not be eligible for student loan forbearance or deferment, and you might lose eligibility for repayment plans.
  • You will lose eligibility for additional federal student aid.
  • Defaulting may be reported to credit bureaus, which might damage your credit rating. This could affect your ability to receive funds for other bank funded ventures like vehicles or homes
  • Your tax refunds and federal benefit payments may be reallocated to the repayment of the defaulted loan.
  • Your wages may be garnished.
  • Your loan holder could choose to take you to court over the unpaid charges.
  • You might not be able to purchase or sell large assets, like estates, vehicles, or properties.
  • You might incur fees from collection companies, court costs, attorneys, and other costs associated with avoiding paying your fees.
  • You might have a permanently affected credit record. If not, it could take years, or even decades to repair your credit score.
  • Perhaps most damaging, your school may withhold your academic record until your defaulted loan has been satisfied.

Yes, You Can Be Sued By the Government for Missing Your Federal Student Loan Payments

For years, it’s been common for the government to collect debts by working with agencies to call and send letters, asking for student loan borrowers to pay up. In cities all over the country however, those practices might be changing.

Recently, the federal government began began employing controversial strategies to try to collect on this debt. Namely, 19 federal districts began suing individuals who have failed to pay on their defaulted student loan debts.

According to the Department of Justice, as of 2017, those lawsuits have affected nearly 3,300 student loan borrowers. Should the government win those cases, in many cases they walk away with a lien on the borrower’s assets. In particular, this affects the borrower’s housing status.

“Any time a person tries to do a transaction involving their house–a new mortgage, a refinance, or if they try to sell it–they’re going to be expected that they clear up any debt that’s attached to that house,” Jennifer Schultz, an attorney with Community Legal Services of Philadelphia explains to NPR. In exceedingly dire circumstances, the government might be able to then force the sale of your house, though those cases are extremely rare.

What Happens If You Don’t Pay Private Student Loans

Private student loans are a completely different ballpark. In fact, statistics show that over 1.4 million borrowers have private student loan debt, which adds up to an a balance of over $150 billion in loans.

Unlike Federal Student Loans, however, private loans function far more similar to a mortgage or a car loan. There is usually a set repayment plan, which if you refuse or are unable to pay can have pretty severe consequences, including litigation.

What Happens If You Miss A Private Student Loan Payment?

Overall, private student loan companies are far less flexible than the federal government is when it comes to student loan repayment. When it comes to specific procedures, it ultimately depends on the lenders’ policy, the borrower’s contract and the state law.

What Happens When You Default on Repayments of Private Student Loans?

Defaulting on your private student loans is not at all the same as defaulting on a federal student loan. In general, depending on your lender, a private loan is considered to be in default after three months without payment. Typically federal loans, go into default after 270 days.

Generally speaking, government based repayment programs are far more likely to consider and approve repayment programs than private lenders are. Private lenders, on the other hand, are far more likely to file lawsuits to reclaim their funds. This not only affects the primary borrower, but can also affect parent borrowers and cosigners.

Being Sued for Private Loans

Depending on the terms of your rental contract, there are a number of consequences that might occur by defaulting on your private student loan.

  • The lender might demand payment of the entire balance owed.
  • The lender could demand payment from any cosigners of the loan.
  • A debt collector could be assigned to the account.
  • The lender could refer the debt to a credit bureau, which may damage one’s credit score of both the borrower and the cosigner.
  • Collection charges may accrue if the charges remain unpaid.
  • If the lender takes the borrower to court, they can obtain a wage garnishment order which can accrue 2% damages.
  • If monetary assets are unavailable, physical assets may be available to be targeted.

The rate of student loan default for college students has only continued to decline in years to come. With more information, college students might be able to make more fiscal financial decisions moving forward.

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