Short Answer
If you stop paying your student loans, the loan becomes delinquent and can eventually go into default. For most federal student loans, default generally occurs after 270 days without a required payment. Default can damage your credit, make you lose access to additional federal student aid, and may lead to collection actions such as wage garnishment or withholding of your federal tax refund. Private student loans can have different default rules and collection procedures.
Detailed Answer
1. Your Loan Becomes Delinquent
The first day after you miss a required student loan payment, the loan becomes past due, or delinquent.
For federal loans, continued delinquency can eventually result in default. For most federal student loans, default generally occurs after 270 days of missed payments.
2. Your Credit Can Be Affected
Missed payments can be reported to credit reporting companies. Federal student-loan delinquency is generally reported after 90 days, and a default can have a more serious negative effect on your credit history.
A damaged credit history can make it harder to qualify for future credit and may affect the terms you receive.
3. Your Loan Can Go Into Default
For most federal student loans, 270 days without making required payments can result in default.
Once the loan is in default, the consequences become more serious. The Department of Education can transfer the loan for collection, and additional collection costs may increase the amount you owe.
4. Your Tax Refund Could Be Withheld
If a federal student loan is in default and eligible for involuntary collection, the government can use the Treasury Offset Program to withhold your federal tax refund and apply it toward the debt.
You should generally receive written notice before a Treasury offset begins.
5. Your Wages Could Be Garnished
Defaulted federal student loans can also lead to administrative wage garnishment. Federal Student Aid says the government can collect up to 15% of a borrower’s paycheck through this process, subject to applicable rules.
Private student-loan lenders generally need to use the legal process applicable to their situation before garnishing wages.
6. You Could Lose Federal Student Aid Eligibility
If you default on a federal student loan, you can lose eligibility for additional federal student aid until you take steps to resolve the default.
7. Private Student Loans Work Differently
Private student loans don’t follow exactly the same rules as federal loans.
A private lender may report missed payments, send the debt to collections, or potentially file a lawsuit, depending on the loan agreement and applicable state law. Private lenders generally cannot directly intercept your federal tax refund.
What Should You Do If You Can’t Pay?
If you’re struggling to make your payments, contact your loan servicer as soon as possible instead of simply stopping payments.
For eligible federal loans, you may have options such as income-driven repayment, deferment, forbearance, rehabilitation, or consolidation, depending on your circumstances.
Final Answer
Not paying student loans can lead from delinquency to default, with consequences including credit damage, collection activity, loss of federal student-aid eligibility, tax-refund offsets, and potentially wage garnishment for defaulted federal loans. The exact consequences depend on whether your loans are federal or private and how long you’ve been missing payments.