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What Happens If You Don’t Pay Student Loans? Here Is The Answer For You

What Happens If You Don’t Pay Student Loans? Here Is The Answer For You

Many young people are burdened by student loans, which is one of the most severe financial obligations they confront. But what happens if you don’t pay student loans? It might be difficult to make these payments while juggling other financial obligations at the same time. It is important to calculate the payoff amount on your student loan to be able to clear it sooner rather than later, as not being able to clear a student loan carries the same implications as not paying off a credit card. However, it can be far worse in one important regard.

The federal government backs the majority of student loans. Failure to make student loan payments can have a number of severe implications, including income garnishment, a decline in your credit score, and the suspension of your professional license. Given the challenging employment market and high cost of living in cities, it’s reasonable that repaying your student loan remains a challenge.

What Happens If You Don’t Pay Your Student Loans?


Are you aware of what happens if you don’t pay student loans? Here are some examples of what could happen in such a critical situation.

1. Late Fees

If you’re 30 days late on federal student loans, you’ll usually be charged a late fee of up to 6% of the outstanding balance. So, if you owed $350 in late payments, you may be required to pay an additional $21 on top of your existing student loan amount. 

Late costs on private student loans are similar to those on public student loans, although they are not standardized. In this case, you’ll either pay a fixed charge or a specified percentage, whichever is larger. 

2. Lower Credit Score

A lender might report the problem to credit bureaus after a specified number of days, which might hurt your credit score. This can have a variety of consequences, including making it more difficult to qualify for credit cards, purchase a car, or obtain a mortgage.  

If you get a loan with terrible credit, you’ll probably pay a higher interest rate. When you’re 30 days past due on private student loans and 90 days past due on federal student loans, loan providers will record your late payments to credit bureaus.

3. Lose Loan Benefits

Here is what happens if you don’t pay student loans on time. Once you fail on your federal student loans, you are no longer eligible for deferments or forbearances. You won’t be allowed to pick your repayment plan anymore. 

You may also be forced to switch to an income-based compensation plan alternatively. As a result, your future repayment options are limited. 

4. Wage Garnishment

Wage garnishment allows a lender to deduct up to 15% of your income to collect on a federal student loan without having to go to court. 

Garnishments on private student loans might amount to up to 25% of your earnings. They can do so until your student loan is paid off in full or you get it out of default.

5. You Could Be Arrested

If you don’t pay back your school debts, you won’t go to jail. However, you may face a lawsuit for unpaid debt. If you fail to appear for your court date, you may be arrested. 

While the notion of “debtors’ jails” is no longer lawful and no longer exists, some people are arrested when they fail to comply with a court order.

6. Withhold Your Tax Refund

The government may confiscate your tax refund if you cannot clear out a student loan. Some states also have legislation in place that allows state guaranty organizations to collect your state income tax refunds. 

If you rely significantly on your tax refund, this might be a significant financial setback. This is what happens if you don’t pay student loans. 

7. Cosigner Becomes Involved

A cosigner is equally accountable for a student loan’s repayment. If you don’t pay, the lender will turn to your cosigner, who will have to start paying. It can also harm the cosigner’s credit, making it more difficult for them to qualify for new loans or refinance current ones. 

In the case of private student loans, cosigners are fairly prevalent. However, a cosigner may be unaware of the consequences if you default on your student loans.

8. Social Security Payments Garnished

Defaulting on federal student loans might have a negative impact on your retirement plan. The government can remove up to 15% of your Social Security payment through a process known as Social Security garnishment. 

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While this does not apply to private student loans, you should be aware of it if you have federal student loans.

9. Lien On A Property 

In some cases, the government will sue you if you fail the repayment on a federal student loan. If the government wins, they will be able to put a lien on your house and perhaps force you to sell it. 

You cannot lawfully sell, refinance, or transfer ownership of your property if a lien has been put on it. You must first pay off the lien in order to clear the title.

10. Lose Eligibility For Extra Financial Support

Here is the last part of what happens if you don’t pay student loans. Once you are not being able to repay your student loan, you will no longer be eligible for federal student aid. 

This usually means that your educational goals will be placed on hold, and you’ll have to work your way out of default in order to obtain help again. 

Final Thoughts

As the number of individuals who can’t pay their student loans rises, it’s more vital than ever that borrowers realize what happens if they are not able to pay. Thus, knowing what happens if you don’t pay your student loans is necessary. Since student debts aren’t going away, it’s critical to keep them under control. 

Borrowers with federal student loans may be eligible for deferral, forbearance, or income-based repayment options, which can give temporary relief or make monthly payments easier to manage. Depending on the lender, borrowers with private student loans who are suffering financial issues have a variety of choices.

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