What happens if you don't pay Student Loans

What happens if you don’t pay Student Loans : 35% of Hispanics who have student loans could not pay them. Defaulting on federal student loans, or default,but it is not the end of the world. We tell you what it consists of and how to get out of default.

how to get rid of student loans
When a borrower defaults, or falls into 
default, it is reported to the credit bureaus and your credit scores receive a blow.

By the end of 2017, nearly 9 million people had defaulted on their federal student loans, totaling $ 154 billion, according to a report released in August by the American Enterprise Institute (AEI).

And while default, or default, in English (which means not making a payment for at least 270 days ) is certainly bad, this conservative think tank wants the public, and in particular the media, to reconsider how default is perceived. .

Being in default, the report says, is not a “catastrophic” situation, but it also paints a bleak picture of what happens to borrowers when they default. Many higher education experts, according to the education publication The Hechinger Report, describe life in default as “a nightmare.”

35% of Hispanics who have student loans could not pay them, according to federal data .But among those who default, of any ethnicity or race, 7 out of 10 would have already paid their debts in the first five years. For this reason, the report makes it clear that non-compliance is not a permanent state.

But while that may be true, defaulting does have damaging consequences, and those harms are more likely to affect low-income people, those who attend for- profit institutions, and those who may be less able to recover quickly .

When a borrower defaults, or falls into default, it is reported to the credit bureaus and your credit scores receive a blow. A low score can make it difficult to rent an apartment, buy a car, or buy a house.

And while many of those who default pay in less than five years, fixing credit takes longer. As the AEI report notes, a default can remain on a credit report for seven years.

Additionally, as the Department of Education says, borrowers who have defaulted on a payment can have their tax refund withheld, wages garnished, and summoned to court.

The consequences of not complying:

  • The full balance of your loan plus interest must be paid immediately , or in English, ” it becomes due immediately” (this is known as ‘acceleration’).
  • You can no longer defer or receive “indulgence.” You also lose eligibility for other benefits, such as the ability to choose a payment plan.
  • You will lose eligibility for extra federal student aid .
  • The default will be reported to the credit bureaus , damaging your credit rating and affecting your ability to buy a car or home or to obtain a credit card.
  • Your tax refunds and federal benefit payments can be withheld and applied toward the repayment of your defaulted loan (this is called “cash offset”).
  • Your wages will be garnished (in English, wage garnishment) . This means that the government can ask your employer to withhold a portion of your pay and send it to the holder of your debt.
  • Your loan holder can take you to court.
  • You may not be able to buy or sell assets like real estate.
  • You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
  • It can take years to reestablish a good credit history.
  • Your school may retain your transcript until your delinquent student loan is satisfied. The transcript is the property of the school and is a decision of the school, not the Department of Education or your loan holder.
how to get rid of student loans
NEW YORK, NY – JULY 01: People walk past the Alma Mater statue on the Columbia University campus on July 1, 2013 in New York City. 
An interest rate hike kicks in today for student loans, an increase for 7 million students. 
Congress left town at the end of last week failing to prevent rates on new Stafford student loans increasing from 3.4 percent to 6.8 percent.

How to proceed?

AEI’s report describes the four ways to regain a good reputation after default:

1. Rehabilitation
It consists of making a certain number of punctual payments.

2. Consolidate loans
You can find out about different consolidation plans and payments with your bank or financial institution.

3. Pay the loans
Create a budget and from this develop a payment plan and a savings plan , in order to meet the payments.

4. In rare cases, loans can be discharged.

But, as the group says, only through rehab can a credit report default be eliminated.

Those who violate tend to be older, have received a Pell Grant (a Pell grant from the federal government not to pay), and come from environments less represented than those who never fail to comply, said the Center for American Progress (Center for American Progress American ), in a report from last December .

“Of the 55% of the defaulters who resolved their most recent loans in default , almost half did so by paying the debt , a solution that could require that large amounts be paid in collection costs ,” the report adds.

These costs can be significant, “of up to 25% of the balance”, as reported in June The Brookings Institution.

The AEI emphasizes that being in default is not a permanent state. What’s unclear is whether the damage from defaulting – losing an apartment or earning a smaller check – would have long-term, or even permanent, effects.

This story was produced in collaboration with The Hechinger Report , an independent non-profit news agency focused on inequality and innovation in education.


If you don’t have money available to make your student loan payments, it doesn’t necessarily mean you’re headed for default. Here’s why.

How can you not pay anything without facing default

Not being able to make your student loan payments can be heartbreaking. The stress generated by this situation can affect your emotional stability, your health, and your relationships.

But not having the money to pay does not mean that you will automatically default and face things like wage or tax garnishment. As long as you can prove hardship, there are options you can use to stay out of default and avoid credit damage.

If you are in this situation, help is available. The information below can help you understand the general options you can use, but every situation is different. Give us a call or fill out the form to the right so we can help connect you with the right professional assistance for your situation.

Option 1: Deferral

This option allows you to postpone principal and interest payments for your federal student loans. When your loans are deferred or deferred, you don’t have to make payments. And in some cases, for Federal Perkins or subsidized loans, the federal government will pay your interest charges during the loan deferral.

If your interest charges are not paid, if you have unsubsidized or other types of loans, then the interest continues to accrue while you are not making payments, so your balances will be higher at the end of the deferral.

You can defer your loan payments if you are unemployed, underemployed, and can demonstrate financial hardship, enrolled at least part-time in school, serving in the military or the Peace Corps. You must request the deferral with your loan servicer.

Option 2: Tolerance

In situations where you will not qualify for deferment, you may be able to use the loan forbearance. This allows you to reduce or stop payments for up to 12 months on both subsidized and unsubsidized loans.

Forbearance can be granted if you demonstrate a certain level of financial hardship or can

emonstrate illness. There is also leniency during residency programs or if you are in the National Guard and are mobilized by your governor. As with deferment, you must request forbearance through your loan servicer.

Option 3: Pay nothing, pay according to what you earn ( Pay As You Earn )

There is one last situation where you can qualify to pay nothing on your student loans without facing credit damage or default. This happens for people who are enrolled in the “Pay as You Earn” student loan consolidation program .

Pay as You Earn is a program for people who can demonstrate financial difficulties, at least partial. That means if you only earn 150 percent or less than your state’s Federal Poverty Line . In this case, your payments are reduced to 10% of your taxable income.

But if you can show greater financial hardship than that, such as earning less than the Federal Poverty Line for your state, then your payments can be reduced to zero until you make more money. Your income is evaluated periodically, but as long as you qualify, you pay nothing each month and still count as having made a payment in relation to your credit and the term of your loan.

Remember, once you consolidate with any student loan program, your loan term adjusts to 25 years. But after 25 years of payments, if you still have balances left, you will be forgiven, regardless of your career field.

Fact: For public servants like nurses, firefighters, and law enforcement officers, loan forgiveness occurs after 10 years.

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