What Happens if I Can’t Pay My Student Loans?

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Points of Interest

It can be scary to realize you can’t pay your student loans. The consequences of defaulting on your student loans are real, but you have options to protect yourself if it happens.

If your financial situation has changed or you’ve recently lost your job, you may be wondering what happens if you don’t pay student loans. Do you have options? Are there consequences? These types of questions are asked often — you are not alone in struggling to pay your student loans.

According to the Federal Reserve, 43% of people who attended college have had some level of educational debt. The average amount of debt in 2019 was between $20,000 and $24,999. As the world faces challenging economic times, many people may be struggling to make ends meet and are wondering what happens if you don’t pay student loans.

What happens if I stop paying my student loans?

Most people don’t just decide that they are going to stop paying their student loans because they don’t feel like it. Defaults on student loans generally happen as a result of something more drastic, like losing your job, rising interest rates, an unexpected emergency or a wage decrease. According to an article by CNBC, almost 40% of student loan borrowers are expected to default on their loans by the year 2023.

If left unhandled, the consequences of not paying your student loans are inevitable and can be quite detrimental to your overall financial picture. Your credit score will be ruined, your account may be sent to collections and you may be sued by your lender for repayment. As more time passes, the situation will get worse. Late payments will turn into a default, which will turn into a claim sent to collections. Recovering from the damage of defaulting will take years and a lot of effort on your part.

Consequences of not paying your student loans

So, what are the consequences of not paying your student loans? While each case will be slightly different based on how your lender chooses to proceed, there are several consequences that will be the same across the board.

Damaged credit history

The first thing to take a hit will be your credit score. Payment history makes up 35% of your FICO credit score, which means late payments and defaults will destroy that portion of your score. Once you have late payments and defaults on your credit report, it takes years to get them removed. Experian, one of the credit reporting bureaus, says that even one single late payment can take up to seven years to come off your report.

Confiscated tax refunds

If you default on federal loans, the government can come after its money by taking the money from your tax refunds. Instead of getting the money you receive every year after filing your taxes, the government may take that money to start covering the costs of your defaulted student loans. If you are in default on private student loans, the lenders are not able to confiscate your tax refunds.

Wage garnishments

While private lenders can’t garnish your tax refunds, they do have a course of action to get paid. Lenders can get a court order to garnish your wages and recoup the money that is owed. In other words, your lender can get a judge to grant them the right to start taking money out of your paychecks before it’s even given to you. While this may feel unfair and invasive, the lenders will do what is necessary to get their money back they are owed.

Unable to get future loans

When your credit gets destroyed from not paying your student loans, it’s going to have a ripple effect for years to come. Other lenders will not want to work with you or lend you money in the future because you are a risky investment. This means that if you need a car loan, want to buy a house, need an emergency personal loan or want to open a credit card, you will probably be denied.


Some private lenders will go as far as suing you for the money that they are owed. This means having to defend yourself in court against repayment terms that are laid out in a contract. In other words, your chances of winning the lawsuit if you’re in clear default are slim to none.

Negative effects on cosigners

If you had a friend or family member cosign on your loan, they are subject to the same consequences as you are on the loan. This means that unless they decide to pick up the tab for you, their credit is going to be ruined, too. Additionally, they are open to lawsuits, garnishments and confiscations. Remember, a cosigner is not a 50/50 relationship. Instead, both parties are 100% responsible for the terms of the student loan.

Tip: Make sure you explain, in detail, the terms of the loan to any potential cosigner. Many people enter into cosigning agreements not knowing they are equally responsible for all terms of the loan and not just a portion.

Best options for every financial situation

Financial situationBest option
Facing unemploymentThe best option may be deferral. Deferral allows you to postpone payments for a period of time, generally up to a year.
Reduction in wagesThe best option may be a change in payment plan for federal loans or refinancing personal loans to a smaller monthly payment.
Change in interest ratesThe best option if you have a variable rate student loan and rates spike is looking into refinancing to a lower fixed rate if possible.
Unexpected emergencyThe best option will be to contact your lender about deferral or forbearance options. Many lenders have options available for short-term relief resulting from unexpected emergencies.

Tip: If you refinance a federal student loan, you will lose the protections afforded by the federal government. Changing your payment plan should always be your first option in these situations.

The final word

If you find yourself in a situation where you are unable to pay your student loans, reach out for help before your first payment is late. Borrowers with federal student loans may be able to change their payment plans to help navigate the financial situation they are in. If you have private student loans, each lender may have options available to help you out.

In both situations, you may also be able to refinance to lower your monthly payment. Remember, though, that this may increase the overall cost over the lifetime of the loan, but it may be your only option.

Jason Lee

Personal Finance Contributor

Jason Lee is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.