What Happens If You Stop Paying Your Student Loans? It’s Not Pretty

What happens if you stop paying student loans? The consequences can be severe and wreck your credit for years.

Broke. Overwhelmed. Frustrated. That’s how a lot of student loan borrowers describe themselves. It’s easy to see why. These payments can be sky-high, and it can be discouraging to see your balance continue to grow with interest charges. 

If you’re like many people, you may be wondering, “What happens if you stop paying student loans?” While skipping payments may be tempting, you shouldn’t do it — the consequences are too severe. 

What Happens If You Stop Paying Your Student Loans? 

If you’re struggling to make ends meet or are simply sick of dealing with your debt and are considering skipping a payment, what happens to you depends on the types of loans you have: 

Federal Loans

When you miss your first payment, your loans become delinquent, and the lender can start charging late fees. Federal loan late fees are generally 6%. If you don’t make your payment for 90 days or more, the lender will notify the credit bureaus that your account is late. A late payment notification can significantly damage your credit score. 

If you keep missing payments, things get worse. Once your account is 270 days late, it is labeled as a defaulted loan and lenders can take the following steps: 

  • They can garnish your wages: Federal loan servicers don’t need a court order to garnish your wages. If you’re in default, they can work with your employer to take a portion of every paycheck to repay the debt you owe. 
  • They can take your tax refund: The federal government can take your tax refund and other federal benefits through Treasury offset. 
  • They can sue you: Your loan servicer can sue you, and you can be charged legal fees and court costs. 
  • They report the default to the credit bureaus: The default will be reported to the major credit bureaus. Having a default on your credit report can make it difficult to qualify for other lines of credit, such as a home loan or car loan. 
  • You lose federal aid eligibility: Once your loans are in default, you’re no longer eligible for other federal financial aid. If you’re planning to go back to school or want to earn another degree, you won’t qualify for aid. 

Private Loans

What happens if you stop paying private student loans? The consequences are different than if you had federal loans, but they can still be harsh. In general, your account enters default when you are 120 days late. When that happens, private lenders can take the following measures: 

  • They can send you to collections: Private lenders will send your account to collections, and you may have to pay costly fees and deal with aggressive debt collectors. 
  • They report the default to the credit bureaus: As is the case with federal loans, defaulting on private loans can result in significant damage to your credit report and credit scores. 
  • They can sue you: Private lenders can sue you for what you owe. In addition to other consequences, such as wage garnishment, you also could have to pay legal fees and court costs. 
  • They can garnish your wages with a court order: It’s a misconception that private lenders can never garnish your wages. While they can’t do so right away, they can garnish your wages if they sue you and get a court order. If they file a lawsuit and obtain a judgment, they can garnish a portion of your paychecks. 

How to Avoid Missed Student Loan Payments

Missing your student loan payments can have steep consequences, so you should do whatever you can to stay on track. To prevent missed payments, use the following tips. 

1. Set Up Autopay

Setting up automatic payments is a great way to ensure you pay your loans by their due dates. Your lender will deduct what you owe from your account on your due date, and, as an added bonus, most lenders will reduce your interest rate by 0.25%. 

2. Talk to Your Lender

If you can’t afford your payments or are dealing with an unexpected emergency that will delay your payment, contact your lender or loan servicer right away. Depending on the types of loans you have and the policies of your lender or loan servicer, you may be able to postpone your payment or enter into an alternative payment plan to give you time to straighten out your finances. 

3. Refinance Your Debt

If your current loan payments are too high, consider student loan refinancing. If you have a job and good credit, you could qualify for a loan with a lower interest rate or longer repayment term and lower your monthly payment to a more manageable level. 

For example, let’s say you had $35,000 in student loans at 6% interest. With a 10-year term, your monthly payment would be $389 per month. 

But if you refinanced and qualified for a 15-year loan at 5% interest, your payment would drop to $277 — a savings of $112 every month. 

If you decide to refinance your student loans, sign up with Juno to get access to the lowest student loan refinancing rates available. We use our group bargaining power to negotiate with lenders, and our members qualify for special discounts and other perks. 

Kat Tretina
Written By
Kat Tretina

Kat Tretina is a freelance writer based in Orlando, FL. She specializes in helping people finance their education and manage debt. Her work has been featured in Forbes, The Huffington Post, MarketWatch, and many other publications.

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