What Happens If You Dont Pay Student Loans?

Not paying your student loans can have severe consequences. From impacting your credit score to your wages being garnished, defaulting on your student loans can have severe and lasting implications on your financial life.

When the pandemic-related pause on federal student loan payments lifted in September 2023, many borrowers were faced with a difficult choice: Start making payments or risk the repercussions of getting behind on payments.

Luckily, there are options available for borrowers to protect their credit and stay current on loan payments. There is even some relief to help federal student loan borrowers transition toward making full student loan payments—plus a generous income-based plan that can lower monthly payments to as low as $0 for some borrowers.

And while the federal student loan relief options don’t directly extend to private student loan borrowers, some private lenders offer forbearance and deferment options to help keep your loans from going into default.

This article examines strategies for holders of both federal student loans and private student loans. You might well have both types of loans. The implications of nonpayment are similar; but your options are different.

If you have federal student loans

If you hold a federal student loan, you are eligible to benefit from the federal “on-ramp” period, which is designed to help ease borrowers into their repayment plan after over three years of no required payments.

Normally, any missed payments would cause borrowers to immediately be considered delinquent—and after 90 days of delinquency, the missed payments are reported to major credit bureaus, hurting your credit score. The on-ramp period can help you avoid these consequences.

What is the ‘on-ramp’ period?

The “on-ramp” period for student loans is a special provision by the Department of Education for federal student loan borrowers; it established that borrowers will not be penalized for missed payments for a 12-month period ending September 30, 2024. If you have federal student loans and haven’t been able to make payments, you will not pay any penalties —and you will not be considered delinquent on your payments.

Borrowers who miss payments during this on-ramp period won’t be considered late, and missed payments will not be reported to credit bureaus. But, loans will accrue interest during this time, which may end up costing borrowers more if they do not make payments during the on-ramp period.

If enough interest builds up due to missing payments, your loan servicer may increase your monthly payment amount (unless you’re on an income-driven repayment plan).

Note that the on-ramp period is only for federal student loan borrowers. No such grace period is available for private student loans

Who’s eligible for the ‘on-ramp’ period?

Borrowers with federal student loans who had their payments paused starting in March 2020 qualify for the on-ramp period. This includes any borrower who has a Direct Loan, Perkins Loan, or Federal Family Education Loan from the Department of Education. Private student loans and loans not held by the Department of Education do not qualify for the on-ramp period.

Enrollment in the on-ramp period is automatic, so you don’t need to elect anything within your student loan account.

If you have private student loans

According to the Education Data Initiative—over 92% of all student loans are federal loans. But there are still over $100 billion in private student loans out there—and they don’t have the same protections and options as federal loans.

Private student loans are those held with a private lender—and they don’t qualify for federal student loans relief programs. Private loans don’t offer forgiveness, subsidized interest, payment moratoriums, or on-ramp periods. If you can’t make your payment on a private loan, you might go into default right away.

If you have private student loans and are not sure whether you can make an upcoming payment, you’ll want to contact your lender as soon as possible. Some lenders offer grace periods on late payments—as well as deferment and forbearance options for specific circumstances.

It’s important to understand your options for missed payments by reading through your student loan agreement. But that might be full of overwhelming legal-speak; a better option is to call your lender and negotiate a payment plan that works.

This might mean refinancing your loans into a different payment term, electing a modified repayment plan, or pausing payments temporarily. Just know that you can’t get your private student loans balances or interest charges erased—and modified payment plans or forbearance may end up costing you more in the long-run.

Consequences of not paying student loans

The consequences for missing student loan payments can be serious. Here’s what happens when you miss a payment.

Credit score impact

If you miss a payment, your loans are considered delinquent. Federal student loans don’t report missed payments until after 90 days, while private student loan companies may report your missed payment immediately.

After you miss enough payments, your student loans will enter default. For federal student loans, your loans enter default after 270 days of missed payments. Private loans may enter default much sooner.

Missing payments, and eventually entering default, can have a massive negative impact on your credit score. It may drop your score and prevent you from qualifying for financing a car or a house. What’s more, you cannot access more federal financial aid if your federal student loans are in default.

Wage garnishment

If your student loans go into default, the government or a private lender may decide to pursue wage garnishment to recover your missed payments. This means money will be taken directly from your paycheck before you receive it. The government can do this without a court order for federal student loans. With private loans, lenders have to file a lawsuit and win a judgment before taking this step. Needless to say, wage garnishment can be a blow to your monthly budget and cause even more financial hardship. It also means your employer will learn about your nonpayment situation.

Lose your tax refund

If you default on your federal student loans, the government can seize your tax refund to help repay your loans. This is known as a “Treasury offset” and allows the government to step in and take any payments from the U.S. Treasury to make up for your missed student loan payments.

Lose borrower protections

In addition to the government going after your wages and tax refund, you’ll also lose borrower protections on your federal loans. You won’t be able to apply for loan deferment, forbearance, or switch payment plans to help with your monthly repayment. You’ll need to get caught up on your payments to reinstate these protections in the future.

Lose future financial aid

If you’re in default on your loans, you won’t be able to apply for any future federal financial aid until you’re back in good standing. This means you can’t get new student loans, or qualify for federal grants. Private lenders are also unlikely to be open to lending to someone with previous loans in default.

TIME Stamp: Missing student loan payments can have serious consequences—but there are options

Missing student loan payments is not the end of the world, but there are real-world consequences you’ll have to deal with. Ignoring your student loans can end up hurting your credit—even your paycheck.

There are relief options available to federal student loan borrowers, including an on-ramp grace period, income-driven repayment plans (such as the SAVE plan), and forbearance or deferment options.

And while private student loans don’t offer the same relief options, you may be able to negotiate a payment plan that keeps you out of default. It’s best to communicate promptly with your loan servicer if you feel unable to make an upcoming student loan payment. This gives you the best chance to find a repayment solution that fits your circumstances with the least possible impact on your credit score.

Frequently asked questions (FAQs)

Is it a crime to not pay student loans?

No, it is not a crime to not pay your student loans, but that doesn’t mean the law is on your side. Student loan servicers have the right to sue you for repayment of your missed loan payments, garnish your wages, and wreck your credit in the process. It’s in your best interest to make on-time payments on your student loans, and work with your loan servicer to get on a repayment plan that works best for your circumstances.

Will unpaid student loans ever go away?

In most cases, unpaid student loans do not go away; you’ll pay for them eventually. This may include wages being garnished directly from your paycheck, which lowers your take-home pay, until the debt is paid off. Even bankruptcy cannot erase student loans in most circumstances, making this type of debt notoriously difficult to shed.

What happens if you never earn enough to repay student loans?

If you have federal student loans, there are several different income-driven repayment (IDR) plans. At the end of a 20- or 25-year time period, these plans offer loan forgiveness (assuming you make on-time payments). If you don’t make enough money to pay them off, but you can make reasonable monthly payments through an IDR plan, the loans will eventually be paid off through loan forgiveness. But private student loans are another story; private lenders may resort to wage garnishment or other debt collection tactics to retrieve any money owed.

What happens if your student loans are delinquent?

If you miss a payment by even one day, your student loans are considered delinquent. If your federal student loans are delinquent for over 90 days, your loan servicer will report the missing payments to the major credit bureaus, which hurts your credit score. Private student loan servicers may report missed payments sooner. Your account will remain delinquent until you make the missing payments or make other arrangements for repayment.