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What happens if I can’t pay my student loans?

College • February 26, 2019 • Lisa Litant

What you’ll learn

  • What happens if you don’t pay your loans
  • What does it mean if your loan is delinquent
  • What does it mean if your loan is in default
  • What to do if you’re having trouble paying

You’ve got bills—rent, food, utilities—and maybe a job that doesn’t pay much. You’re done with college, so do you really need to keep paying your student loans? Yes…and here’s why.

Don’t pretend your student loans will go away

Just like a mortgage or a car loan, student loans—both federal and private—are legal agreements that you signed, promising to repay the amount you borrowed plus interest. There can be legal penalties if you don’t. That’s why ignoring your outstanding loans just makes things worse. Here are a few ways unpaid student loans can affect your life.

  1. The amount you owe will keep growing…and growing

    Interest starts to accrue (grow) from the time your loan money is sent to your school. The longer interest isn’t paid, the more it will continue to add up. Plus, there may be late fees that will boost your total loan cost even more. A growing balance can put you in a financial hole for much longer than just paying the original amount.

  2. Unpaid student loans can drag down your credit report

    Loans become delinquent after you miss your payment due date. Late payments may be reported to consumer reporting agencies, which can impact your credit score. And if your loan goes into default, it can stay on your credit report for up to seven years. That might mean saying good-bye to new credit cards, cellphones, car loans, and rent or mortgages, because companies want to know that you’re likely to pay back your debt. If your credit application is considered, you could be charged a higher interest rate than if your credit was healthy.

  3. You may put your cosigner’s good credit in danger

    Having a cosigner on your loan means that someone—a parent, guardian, grandparent, or other creditworthy individual—was willing to back your education by putting their credit on the line for you. A cosigner is equally responsible to ensure that a loan is paid on time. So if you don’t pay, they have to pay it. And if not paying hurts your credit, it could drag down their good credit, too.

Short-term solution: forbearance

If you’re having a temporary financial problem, you might want to consider putting your loan into forbearance, which lets you postpone your payments for a short time. You need to call your loan servicer and ask about it. The good news is that it can give you the extra time you need to make payments. However, interest continues to accrue during this time, so you’ll end up paying more for your loan. That’s why at least paying the accruing interest while you’re in forbearance can be helpful.

Longer-term issues: delinquency and default

    When you miss a payment, your loan is considered delinquent. You may incur late fees and lose benefits that require you make a certain number of payments (like cosigner release). If you continue to ignore making payments, your student loan can be classified as in default. This can lead to more serious consequences.
  • For federal student loans, the government can garnish your wages (which means your employer withholds money from your paycheck and sends it to the lender), Social Security checks, federal tax refunds, and even disability benefits.
  • For private student loans, your entire loan balance becomes due when you’re in default, not just the payments you’ve missed. Your default will likely be reported to the consumer reporting agencies—and it can stay on your report for up to seven years. Is your credit that important? Yes, a poor credit rating can affect your life, from getting a job, a home, and more.

Who ya’ gonna call?

When you realize you can’t pay your loan(s), call your loan servicer and ask what options are available. They can often suggest alternative payment plans or services—their goal is to help get your finances back on track, and they’ll want to work with you if you’re having financial troubles.

It may seem tough, but it’s valuable to know your options and the steps you should take to protect your healthy credit and your future. You can do it!

Lisa Litant is a content manager at Sallie Mae. When she’s not helping people save and pay for college, she travels, sings cabaret music, and blogs about jewelry.

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Sallie Mae does not provide financial, tax, or legal advice and the information contained in this article does not constitute tax, legal, or financial advice. Sallie Mae does not make any claims, promises, or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Readers should consult their own attorneys or other tax advisors regarding any financial strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Sallie Mae.