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

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:

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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:

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  • 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.

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