What happens if I Don't pay my student loans?

Wondering what happens if you don't pay your student loans? We've got all the info on Student loan default, delinquency, repayment options, forgiveness programs and their consequences.

Posted by Sharan Kumar on 12th April 2019


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

Although you might not get arrested or much worse have U.S. marshals banging on your door, as did a Texas man recently, It is still a bad idea for you to have that debt lying around.

In most aspects, letting your student loans fall into default has about the same effects as it is to have outstanding credit on your credit card that you are unable to pay. Although in some aspects it could be a lot worse. Most of the student loans are guaranteed through the U.S. federal government so in terms of power over the collection of debt the feds trump the debt collectors any given day of the week.

It might not be as horrible of a situation as finding federal marshals armed and ready to take your front door down, but it can be a not so pleasant experience.

Numbers Topics
1 What Happens if You Don’t Pay Your Student Loans?
2 What is it that can be done to deal with this?
3 Is there anything good about student loan debt?
4 What is the worst that could happen?
5 So what's the bottom line here
6 FAQs - Not paying student loans

So here we go,

"Delinquency" is the First step 

First thing to happen before you get your loan into default is obviously that you have your loan on delinquency, so you are considered a "delinquent" when your loan payment is about 90 days overdue, it also becomes officially "delinquent." and is also reported to all the credit bureaus at least the three major ones. Your credit score will take a hit.

This infers that in case you apply for any sort of credit, you will most definitely be denied or even if you happen to get it will be charged a phenomenal interest rate as you are termed a risky borrower. A bad credit score will follow in all sorts of ways. Like if you are applying for a new job, your employer will most often check your credit score so as to have an understanding of your character and your compliance and your punctuality.

This also applies to other sorts of service providers such as cell phone network providers, who will outright deny service contract that you request. Some utility company might ask for a security deposit in case they consider you are not a creditworthy customer. If you are looking for a new place to stay, your new landlord might have a look at your credit score and reject your application.

The next step is obviously "Default"

Here you become defaulted on a loan when your late by 270 days and sometimes another 90 days later from your last due date, it becomes officially "in default". The extra 90 days is because your lender has a time period of 90 days until when they are required to submit a report regarding your loan default to the authorities. So a total of 270+90 days. The lender to which you owe the money will send your account to any one of the collection agencies.

The agent that is assigned or the team will try it's best to make you pay by contacting you and other methods which are not prohibited by the Fair Debt Collection practices act. Debt collectors are also most probably going to add on fees so as to help them cover the cost of recovering the money.

It might take a couple of years sometimes before the federal government gets into the loop and decides to do something about it, but when they do step in, their powers are to be reckoned with. It is able to seize your tax refund and use that to deal with your outstanding debt. It can also garnish your wages in some form by contacting your employer and having them send over a part of your salary directly to the government.


What is it that can be done to deal with this?

There are a couple of things that cannot be avoided, but you should try to fix things up before your loan falls into default. There are many programs that can help you with this considerably, and they are all available for those that have federal student loans. such as Stafford loans or the Grad PLUS loans, although this is not made available for the parents of those parents who borrowed money for paying for the education of their children.

Three similar programs called the Income-based repayment or IBR for short, the Pay as you earn or the PAYE for short and the Revised Pay as you Earn or REPAYE for short help in reducing your loan payments to a level that is affordable which is based on your income and also your family size. The government even may sometimes help by paying a part of the interest that you need to pay on the loan and might even forgive the rest of your debt after you make a certain number of timely payments over a couple of years.

The last thing for me to mention is this, the way this feature of the Obama Student loan forgiveness program originated is through the last feature that was mentioned above, where after a certain period of years of timely payments the balance amount would be forgiven but this is after quite the number of years that is about 20-25 years. The payments can also be reduced to zero but only for those that have a very low income for those persons that are indebted.

Another program for student loan forgiveness is the Public Service Loan forgiveness program specifically designed for people that work in jobs of public service, either that belongs to the government or for a non-profit organization. People that participate might be eligible for federal debt forgiveness after a period of about 10 years of work in that job and of 10 years of timely payments without any defaults or late payments.

All the info about these federal programs is made available online, and also info about the requirements for being eligible for the same. It is also important for you to make a note that if your loans are in default these programs will not work for you.

A good thing to start off with is to get in touch with your lenders as soon as you understand that you might be in trouble or might get into trouble soon with keeping your payments on time. The lender might be able to work with you to get you a more adjustable repayment plan or guide you to a federal program.


Is there anything good about student loan debt? 

A good thing about student loan debt is that, if you are regular on your payments, it will have a good impact on your credit rating. According to Experian, consumers with the student loan debt on an average have a much greater credit rating than those that are debt free. This solid credit history will be a good thing for a young adult that is trying to get their first mortgage or a loan for their car.


What is the worst that could happen?

Well, a man from Texas found himself in the worst case scenario where he had armed U.S. marshals at his front door. He had borrowed a loan amount 29 years ago which he had failed to pay. The government finally decided to sue him. According to the U.S. Marshals service, many attempts to contact him and serve him with a court order had turned out to be with no avail. When he was finally contacted back in the year 2012 by phone, he denied his appearance in court.

A judge then frustrated by this issued his arrest warrant that year, citing that his refusal to appear in court was reason enough. When the marshals confronted him finally outside his home he said "I went inside to pick up my gun because I did not know who these guys were" to CNN.

And that is how you will end up. Face to face with an armed and ready to act group of U.S. marshals with some local law enforcement as a backup at your front door ready to take you out for a joyride, for failing to pay for a student loan that amounted to $1,500. (Just to clarify, he said he thinks he had already paid the debt, did not know anything about an arrest warrant on him and did not seem to recall the phone call.)

Although this story might sound scary, it too had a happy ending. When he was finally taken to court, at last, the man agreed to pay off his 29-year-old student loan debt, plus the accumulated interest, at the rate of almost $200 a month. After the 29 years, his $1,500 debt had grown to just under $57,000.


So what's the bottom line here

The government and the banks have a very good reason for working with those that are having trouble paying off student loans. Student loan debt has reached a new record now, with almost 44 million people that on an average owe a balance of about $34,000, which is according to the credit report from the company Experian. You might be right that the government and the banks are just as anxious about receiving money as you are about paying for it.

But just keep in mind to get in touch with them in case you see some potential trouble coming up ahead. Ignoring things will only make it worse for both of you.


FAQs - Not paying student loans

Is it possible to pay off student loans early?

Although they don't have any prepayment penalties for both their types of loans they are federal and private student loans. You have the option to make higher payments and also pay off in full without having to pay any penalties. For private student loans, you should find who your servicer is on your credit report.

Is it possible to negotiate your student loans payoff?

It is possible to get it done early by negotiating but it is difficult and usually a little rare. Once you get into collections, you can get in touch with the collections agency or the owner of your loan and ask if you are able to negotiate a settlement.

What do I do if someone sues me when I have no money?

Sadly, there is no good thing to talk about this, if there is someone with very little in terms of income or assets, they are basically judgment proof in the sense that even a win against them is termed a loss, because you spend money and time to sue them but get barely anything in return. Someone who has no assets now might have some later on.

How much is IRS able to take out of my paycheck?

IRS can garnish wages up to the point that only $425.96 is left in your account, so if you earn be it $1000 or $2000 you will lose everything except this amount basically you will lose $574.04 in the former and $1574.04 in the latter. Although your taxes will also be taken into account. So keep a note of that.

How can you have your student loans forgiven?

You can have up to 60% of your student loans paid over a period of 2 years of employment. If you work harder for the third year, you will be able to qualify for another 25%. To qualify for the NURSE Corps Loan Repayment Program, you should be a registered nurse, nurse practitioner, or a faculty member.

What is the number of wages that can be garnished?

It is stated by federal law that judgment creditors can only take away so much of your paycheck. And this amount is limited to 25% of your discretionary income or that which is left after the mandatory deductions or the amount which exceeds your weekly wages by 30 times over the minimum wage, whichever of the two is lower.

Is it ever possible to have our student loans written off?

Since graduates only being to pay off their debts when they hit a certain amount of income threshold which has been since 2012 and get their debts written off if they are not paid for a period of 30 years and if you did the course through 2006-12 then it is for 25 years.

How long can I abstain from paying my student loans?

At the end of the year 2017, 11% of the debt that existed was overdue by 90 days. For federal student loans, if you miss payments for a period exceeding 270 days you will enter loan default. Having difficulty paying of student loans is a common thing so do not fret.

Is it possible for me to go to jail for not paying my student loans?

No, it is not possible for you to be arrested or go to jail for not paying your student loans. Since failing to pay your student loan, credit card debt, or a hospital bill are all considered civil debts and you cannot be arrested for not paying civil debts or your student loans.

How can I get rid of my student loans faster?

  • Make higher monthly payments

  • Make more payments when possible

  • Think about loan refinance

  • Get into a side hustle

  • Make use of your job advantage

  • Figure out ways to reduce the interest rate

  • Leverage your tax deductions and credits

  • Steer clear of some repayment plans

  • Clean up your budget