While there are ways to make paying it off easier (humble brag: our platform), nobody enjoys having student loan debt. And with borrowers dreading the return of federal student loan payments this winter, you may find yourself wondering what happens if you just don’t pay your student loans.
Not paying your federal student loan bill is a very, very bad idea. Even unintentionally missing a bill can have dire consequences, ranging from late fees to lawsuits.
Need further convincing? Keep reading to learn what consequences you can face if you fall behind on your federal student debt payments — and how to bypass penalties if you can’t pay.
If your federal student loan bill is late by one day
Federal student loans become delinquent if a bill goes unpaid for just one day, and they’ll stay that way until you’ve paid the past due amount, or you’ve applied and been approved for forbearance or deferment (more on that later).
Unpaid federal student loan bills typically won’t incur late fees in the first months of delinquency — but if that makes you think letting your student loan bill go unpaid can’t be all that bad, we bet you’ll change your mind when you read what happens when a bill is severely past due.
If your federal student loan bill is late by 90 days
Once your federal student loan bill has been unpaid for 90 days, your loan servicer can — and will — report your missed payment to credit bureaus. If that happens, expect your credit score to drop by as much as 100 points and for the delinquent loan to stay on your credit report for seven years. Ouch.
If your federal student loan bill is late by 270 days
After 270 days, delinquent loans enter default — and that’s when the real trouble starts. While most of the penalties for defaulting on your loans are paused through January 31, 2022 thanks to emergency COVID-19 relief, you’ll face some pretty serious consequences under normal circumstances:
- The loan’s entire outstanding balance (not just the late payments, and including interest) becomes immediately due
- The loan could be sent to a collections agency, which can lead to a 17.92% late fee on your entire balance
- All of the loan’s benefits are forfeited, including the ability to choose your own repayment plan (including income-driven repayment plans) and receive deferment or forbearance
- You’re banned from taking out further federal student loans
- The defaulted loan is reported to credit bureaus, further torpedoing your credit score
- Your tax refunds, social security payments, and even the new child tax credit can be withheld
- Your loan servicer can take a portion of your paycheck to pay off the loan
- The Department of Education can sue you, which can result in hefty court costs and legal fees
- The Department of Education can place a lien on any valuable assets you own, including houses and cars
- Your school can withhold your academic transcript until your loan is paid back, putting your ability to apply for graduate school or certain jobs in jeopardy
How to get help
Clearly, letting your federal student loans go unpaid isn’t a good idea. But all too often, struggling borrowers don’t have a choice: 25 percent of student loan borrowers enter default within the first five years of repayment, and 10-20 percent of all student loans are in default at any given time.
If you’re struggling to pay your federal student loan bills, or if you’ve already missed payments, you’re not alone — and you have options.
If you’re struggling to pay, or your loans are delinquent but haven’t yet entered default, applying for an income-driven repayment (IDR) plan could be a great solution:
- An IDR plan (among other benefits) could lower your monthly required payment amount to as little as $0.
- If you’d like to go this route, check out our Reassess tool, which makes it easy to find, compare, and enroll in alternative federal repayment plans in a matter of minutes.
If you can’t afford to pay anything or don’t qualify for an IDR plan, you may be eligible for federal student loan forbearance or deferment:
- Deferment allows you to stop making payments towards the principal (and in some cases, interest) balance of your loan for up to three years.
- If you don’t qualify for deferment, forbearance can pause or significantly reduce monthly payments for up to twelve months.
If you’ve already defaulted on your federal student loans, loan rehabilitation and consolidation are often the best paths forward:
- Federal student loan rehabilitation requires that you make nine monthly payments within ten consecutive months, and that those payments are equal to 15% of your discretionary income.
- After you complete rehabilitation, the default is removed from your credit history and the benefits of your loans (such as the option to enroll in an IDR plan) is restored.
- To consolidate a defaulted federal student loan, you must make three full, on-time, consecutive monthly payments on the defaulted loans, and agree to repay your consolidated loan on an income-driven plan.
- One major caveat: unlike loan rehabilitation, consolidating a defaulted federal student loan won’t remove it from your credit history, leaving the default to impact your credit for years.
- However, because consolidation only takes three months, it can be a good option if you have a pressing need to get back in good standing quickly — for example, if you’re going back to school and need to apply for more federal student aid.
Wrapping it up
No one wants to find themselves falling behind on their federal student loan payments. Luckily, there are some steps you can take to prevent this problem before it happens:
- Set up auto-pay with your loan servicer to avoid missing monthly bills. Note that if your loan servicer is changing this year, you’ll need to reconnect auto-pay through your new servicer.
- Set a calendar reminder on the day your student loan payment is due each month to check your bank account. Even if your bills are on auto-pay, double-checking that the payment has been initiated will give you extra peace of mind.
- Make your monthly payment more affordable. Enrolling in an alternative repayment plan, such as an IDR plan, could significantly lower your monthly payment amount. Case in point: our Reassess tool lowers the average borrower’s monthly bill by $326 by making it easy to find and enroll in alternative repayment plans in a matter of minutes.