What Happens If You Do Not Pay Your Student Loans?

Congratulations, you've made it through school! Most likely, you now have student loans to repay. Even if you are dissatisfied with your education, you must pay these loans back. Avoiding repayment will hurt your credit and cause a greater financial burden in the long run.

Default

When you fail to pay back your student loan according to the terms set forth in your promissory note, you are in default.

Consequences

When you default on your loan, the credit bureaus will be notified and your credit score harmed. If you have a federal student loan, you will be barred from receiving any additional aid if you decide to continue your education.

Financial Burden

The government can also garnish your wages or take back your income tax refunds until you begin to pay your loan again. Additionally, defaulting will make your loan more expensive in the long run, as interest and late fees will accrue.

Repayment Plans

Starting in 2009, the Income Based Repayment plan was introduced for federal loans. The plan sets a maximum limit on the amount due each month, based on your income, easing your financial burden. Additionally, loans on the IBR plan will be forgiven if not paid within 25 years.

Forebearance

If you simply cannot pay back your loans at any time, you may request a forbearance for a certain amount of time, usually up to 12 months for each forbearance, for a maximum of three years. Interest will continue to accrue on your loans during this time, and you will be responsible for it.

References

• Federal Student Aid: Repayment Plans and Calculators
• Funding Education Beyond High School: Repaying Your Student Loan
• Nolo: What Happens if You Default on Your Student Loans