Home > Students > What Happens If I Ignore My Student Loans?

Comments 25 Comments

Failing to repay debt is no joke, especially when you’re talking about student loans. If you default on federal student loans (the most common kind), you’ll likely have to deal with debt collectors, wage garnishment, loss of tax refunds and a trashed credit standing, making it difficult (if not impossible) to rent an apartment, buy a car, use a credit card, own a home or attain many forms of financial stability.

This hasn’t fazed Lee Siegel, who recently wrote about his decision to not repay his student loans in the New York Times. “I chose life,” he wrote in his column, which appeared in the opinion section on June 7. “That is to say, I defaulted on my student loans.”

The column is igniting a firestorm of commentary from many corners of the Internet, bringing the topic of strategic student-loan default to the forefront of online conversations. What exactly happens when you don’t repay your student loans? Read on:

__________________

By some estimates, nearly one in three student loan borrowers in repayment are behind on their payments. Some of those borrowers may be paying as much as they can, when they can, but others may feel their debt is hopeless and are taking the ostrich approach instead.

Others, like Credit.com blog reader Laurie, aren’t even sure about the status of their loans. She wrote:  “I am working toward my master’s and the loans I have used are deferred. I took one year off school and didn’t realize I was delinquent on my loans.”

“Ignoring your debt only makes it worse,” may sound cliche, but when it comes to these loans in particular, there is truth in that adage. Student loans don’t just go away, and the consequences of making no attempt to pay or resolve them can be severe.

But what does happen if you ignore your student loans?

The Consequences

You’ll get deeper in debt. Interest will continue to accrue and your balances that seem so daunting now will get even larger. Loans that go to collections will incur additional collection costs of up to 25%. Ouch! (State law may limit collection costs.)

Your credit scores will suffer. Late payments will appear on your credit reports and your credit scores will go down. Negative information may be reported for up to seven years, and for many graduates their credit scores are more important than their college GPAs when it comes to real life.

You will eventually go into default. Most federal loans are considered to be in default when a payment has not been made for 270 days. Once you are in default, the government has “extraordinary powers” to collect, as we’ll describe in a moment.

Private student loans are a bit different, though. The definition of “default” depends on the contract, and may include simply missing one payment or the death of a co-borrower. Private loan lenders don’t have the same collection powers as the federal government but they can sue the borrower, and if they are successful, then use whatever means available under state law to collect the judgment.

“When it comes to private student loan debt, the one axiom people need to remember is doing nothing will generally leave you really, really screwed,” says Steve Rhode, founder of GetOutofDebt.org.

You may have to kiss your tax refund goodbye. Expecting a tax refund? If you have a federal student loan in default, the federal government may intercept it. Married filing jointly? Your spouse’s portion of the refund may be at risk too, and they may have to file an injured spouse claim to recover it after the fact. (Private student loan lenders cannot intercept tax refunds.)

Your wages may be garnished. Normally, a creditor must successfully sue you in court in order to garnish your wages, and even if they are successful, there may be state limits on whether and how much income can be taken. But if you are in default with a federal student loan, the government may garnish up to 15% of your disposable pay. You may be able to challenge the garnishment under certain circumstances, but in the meantime, do you really want your employer to know you are in serious trouble with your loans?

Any co-borrowers are in as much trouble as you are. Anyone who co-signed a student loan for you is on the hook 100% for the balance. It doesn’t matter if it was your 80-year-old grandmother who co-signed for you; she is going to be pressured to pay and may be at risk for the same consequences you face.

You may be sued. Lawsuits are less common with federal loans than with private ones. (After all, why would the government sue when it has so many other ways to collect?) But a lawsuit is always a possibility especially if you ignore your student loans. If you are sued, you may find you need the help of an attorney experienced in student loan law to raise a defense against the lawsuit.

You’ll be haunted by this debt until you die. It may sound blunt, but it’s the reality. Student loan debt will not go away if you ignore it. There is no statute of limitations on federal loans, which means there is no limit on how long you can be sued. State statute of limitations do apply to private student loans, however, limiting the amount of time they have to sue to collect. But it doesn’t stop them from trying to collect from you — and if you don’t know your rights it may go on indefinitely.

“The biggest tragedy is all of that could be easily avoided by enrolling in one of the government programs to help people repay debt,” says Rhode. He is referring to programs available for federal loans such as Income-based Repayment (IBR) that allow some borrowers to qualify for a lower monthly payment based on income, and then discharge the remaining balance after a certain number of years of repayment.

But What if You Can’t Afford to Pay?

If you’re now convinced that you can’t ignore your loans, but you also are afraid because you don’t think you can afford to pay them, what can you do? For starters, get your free annual credit reports so you can see which loans are being reported by whom. Then get your free credit score using a service like Credit.com so you have a clear understanding of how this debt is affecting your credit. You can also use the National Student Loan Database to track down your loans.

For federal loans, you can get back on track with a reasonable and affordable payment plan. Start the process at StudentLoans.gov. (Be careful if you talk with a collector or servicer about your options. Some provide borrowers with accurate information, but some do not.) Here’s a guide to options for paying off student loans

For private loans, Rhode recommends you talk with an attorney who understands how to dicharge certain private student loans in bankruptcy. It can be tough to qualify, but not impossible. If that’s not an option, you may be able to try to negotiate a settlement.

While it’s never a good idea to ignore loans, there are times when a borrower simply cannot afford his or her loan payments. That’s especially true in the case of private loans, which don’t offer the same flexible options as federal ones.

“If you can’t pay, you can’t pay,” says attorney Joshua Cohen, who is known as The Student Loan Lawyer. “Your living expenses are more important than your private loans, and your federal loans are more important than your private loans,” he says. “It is important to prioritize.”

Listen to an interview where Cohen explains your options for getting out of default. Listen online here or download the podcast here. 

More on Student Loans:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Anon

    Yeap I’m now 60 years old and I owe >$125K in student loans. Maybe I’ll just stop paying because there is no way I can pay this off or earn enough before I retire or die.

  • http://www.credit.com/ Credit.com Credit Experts

    You are right that your refund can be intercepted. Joshua Cohen, aka The Student Loan Lawyer, says it’s extremely difficult to get the refund back once it is intercepted. He advises getting out of default first and then filing.

    • Luis

      That’s what I would like to do. But can’t find any info or forms online. What is it called? (this process)

      • http://www.credit.com/ Credit.com Credit Experts

        We have a post on that issue scheduled for next week.

  • gravel

    My school loan has gone into default & now a debt collector is contacting my employer to garnish my wages, and they’ve tacked on $6,000 more for fees and interest! Can they do this and how can I have it stopped?

    • http://www.credit.com/ Credit.com Credit Experts

      Maybe they can. You can try contacting the Student Loan Lawyer Joshua Cohen for advice. And we’ve written about debt collectors adding to your debt:
      Can a Debt Collector Double My Debt?

      Sorry we don’t have better news for you.

  • http://www.credit.com/ Credit.com Credit Experts

    Student Loan Tax Refund Offset

  • Happy

    Sure glad I moved overseas where they can’t find me….haha

  • danim8eer

    Don’t let people scare you about private student loans. after 7 years in default they come off your credit report forever. Also, if the lender hasn’t taken you to court within a certain time (called statutes of limitations and varies by state but typically not more than 4 years after the loan defaults) they cannot sue you legally. If they take you to court after the statutes of limitations are up just show up and ask the judge to dismiss the case as “barred by statutes of limitations.” They have to by law. Example: The last time I made a payment to my student loan was June of 2010. The statutes of limitation in California where I live is 4 years. They would have had to have taken me to court before June of last year. Now I just wait until June of 2017 and then request that the debt be removed from my credit report for good. Be careful not to make a payment or reinstate activity on the loan otherwise the loan date starts over again. Federal loans are a different story. Those will follow you to the grave but being as though it’s a federally backed loan they’re typically much easier to work with and the interest rates are much lower. Good luck and don’t pay if you’re already several years in default just ride it out a couple more years. It will take you 7 years typically to get good credit after a default anyway.

    • http://www.credit.com/ Credit.com Credit Experts

      Your information on private student loans is not accurate. Unfortunately, private student loans do not work the same as other private loans, and private loans also do not have the repayment options offered by federal loans. They can occasionally be erased in bankruptcy, however. For most people, though, not paying them simply adds to the balance owed.

      • Samantha

        I have heard from multiple people that by not paying them was the only way the lender finally negotiated the loan amount. A few people had balances of over $90k and they had settlements of $20k.

        • http://fixstudentloandebt.com/ Federal Student Loan Help

          You never want to settle a loan that is in default status unless you have the extra money. Once your student loan goes into default they add on so much interest, this can take a $10K loan up to $20-$30K. So you really are not settling they are just removing some of the interest that has been added on. Remove the default status 1st then settle.

          • Samantha

            No one is going to negotiate the loan amount unless your loan is in default…

          • http://fixstudentloandebt.com/ Federal Student Loan Help

            And how do you figure that? I actually negotiate student loan settlements on a daily basis.

    • Samantha

      Hi there– I have about $80,000 in private and $60,000 federal loans (from the Art Institutes). I was considering stopping payment as I have already paid over $90,000 and my interest rates are at 14%. I requested to remove the cosigners, but they refused as the compound interest has sky rocketed the principal. My family lives in in Texas, but I fear that the collectors will attempt to put a lien on their house. My only hopes are that the Art Institutes go under (as they have just shut down 15 of their campuses). Did you have a cosigner on your loans and did they go after them yet?

      • danim8eer

        I did not have a cosigner but so far they have not come after my property or my wages. Again it wouldn’t matter if they did statutes of limitation in California only gives them 4 years they can sue. My original principal amount was for 16,000. When it defaulted it was at 39,000. They are now willing to settle with me for 5,000. Mainly because they know I only have 2 more years before it gets written off. Check out this article

        https://www.tuition.io/blog/2013/09/is-there-an-escape-hatch-from-private-student-loans/

      • danim8eer

        Also Samantha unfortunately even if the school goes under you’re still responsible for the loan. I went to Brooks college which went bankrupt and I still wasn’t able to get out from under the loan.

  • http://www.Credit.com/ Gerri Detweiler

    If debt collectors are threatening you, then you need to talk with a consumer law attorney with experience in student loan debt collection. You can very likely get a free or low-cost consultation and if the attorney believes you have a good case, they can represent you at new out-of-pocket cost to you. Federal law offers a number of protections against debt collection harassment and it sounds like you need to find out whether this agency has crossed the line. Your other alternative would be to file a complaint with the Consumer Financial Protection Bureau, but I recommend you at least talk with an attorney. You can find one with this kind of experience via the websites of the National Association of Consumer Advocates or the website of The Student Loan Lawyer.com.

  • http://www.crestind.com/ crestind

    Change your number. It’s not hard.

  • Jeanine Skowronski

    Hi, Marie,

    We looked into this for you:

    My Co-Signer Filed for Bankruptcy. Will I Be Affected?

    Thank you,

    Jeanine

  • http://fixstudentloandebt.com/ Federal Student Loan Help

    By delinquency you mean in default?

  • Jeanine Skowronski

    The Fair Debt Collection Practices Act prohibits collectors from calling too early in the morning and too late at night. You can find more info here:

    https://www.credit.com/debt/understanding-your-debt-collection-rights/

    Thanks,

    Jeanine

  • they lie

    I’m permanently disabled, in 2007 my loans where forgiven. Three years 2010 I get a letter for sal may saying I owe my loan. They also add 50% intrested for no payment. I sent them a letter showing that my loan where forgiven. I don’t here from them. In three months I get another letter from another company saying the same thing. I tryed asking to do a payment plan, no none of many companies that have held my loan will do that. Tryed getting an attorney no one will take the case. It six years down the road with this crap. I’m getting no were with this.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team