Not paying student loans? Your financial future may disagree

Sitting outside on steps in sunlight.

What are the impacts of not paying your student loans?

When you’re out of school you may think, “I’ve got my college degree…why should I pay back those student loans I took out years ago?” But while ignoring the monthly bills might feel good in the moment, this can have a life-changing impact on your finances. Before you make that serious choice, consider these facts. 

It’s a legal thing 

When you applied for—and accepted the terms of—your student loans you signed a legal contract (a promissory note). Like with a car lease, credit card, or mortgage, you have a legal obligation to repay what that you’ve received, with interest.

The money you got from those student loans allowed you to attend college and get your degree. That’s why refusing to make loan payments—for federal or private loans—can lead to long-lasting financial issues that may take you years to recover from.

You’ll have to pay even more

Most loans have late fees that kick in after you’ve missed a payment. As you continue to delay paying, that amount will go up and up. Your loan servicer may even increase your monthly payment to make sure you pay off your loans on time.

When you miss just one payment, your loan will be considered “delinquent.” That means your account (for both federal and private loans) can be reported to the national credit bureaus.

  • For federal loans, if your payment isn’t received in 90 days after the due date, your servicer can report it to the credit agencies, and it can show up on your credit report.
  • For private student loans, a delinquency can be reported in 30 days (or more, depending on the issuer’s guidelines).

If you still don’t make payments for your loan, your loan will be considered in “default,” a more serious classification. It means you’ve failed to repay your loan. This information will be available to every company you’re requesting credit from (including when you’re applying for a new car loan, a mortgage, rental agreement, and credit cards).

  • For federal student loans, your account will go into default after 270 days of no payments.
  • Private loan issuers have different timelines when an account goes into default.

When your loan is in default, you’ll have to pay the entire amount owed, plus fees. The servicer or loan lender can also send your account to collection. For federal loans, the servicer also has the right to take the balance of your payments from your wages (called “wage garnishment”).

Say “goodbye” to good credit…and more

A word about why credit is so important…

One source defines credit as a legal “arrangement that allows you to borrow money now and repay it later.” footnote 1  Make payments on time and your credit rating will be higher; be delinquent or in default and you may find it harder (and more expensive) to rent an apartment, buy a car, get a cellphone, put utilities in your name, and even get a credit card. Why more expensive? The better your credit, the lower the interest rate you’ll be offered.

As we mentioned above, if you don’t make payments, your loan servicer(s) can report it to the national credit agencies. And if your credit score goes down, you’ll have to pay more for every loan you take out going forward (if you can get credit at all). There may not be a quick fix…a delinquent account can remain on your credit report for seven years. (A credit report is a detailed summary of your credit history that’s issued by consumer reporting agencies.)

Some other impacts of not paying your loans:

  • For federal loans, your tax return can be withheld and they can even put a hold on your salary (called wage garnishment).
  • You can lose your loan’s benefits and the ability to change your federal loan repayment plan.
  • You may not be eligible for future student loans.
  • Your account can be sold to a collection agency, which could sue you.

Consider your cosigner

The majority of private student loan borrowers need a cosigner to get a loan approved. This is often a parent or grandparent who believed in your education and took on the financial responsibility so you could get the loan. If you don’t pay, they’ll be stuck making payments themselves. And if they don’t pay, their credit will be damaged. 

If you’re having trouble paying your student loans

There’s a difference between having trouble making payments and refusing to make payments. If you’re having financial difficulties, the first thing to do is reach out to your loan servicers. For federal loans, there are income-based repayment plans (like SAVE) that can lower your payments. Private lenders may also have programs that can help you make at least some payments and stay out of delinquency.

Not paying is a serious decision

Choosing not to pay back your student loans isn’t a decision that should be made lightly; it can have a serious financial impact for many years of your life. Put your finances on a strong foundation and help the future you.

footnote Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances.

footnote External links and third-party references are provided for informational purposes only. Sallie Mae cannot guarantee the accuracy of the information provided by any third parties and assumes no responsibility for any errors or omissions contained therein. Any copyrights, trademarks, and/or service marks used in these materials are the property of their respective owners.

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