What happens if you don’t pay off your federal student loans
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For many student loan borrowers, the amount they pay each month to pay off their debt is not insignificant. In fact, the average monthly student loan payment is currently $ 393, which can be an overwhelming expense if you’re struggling to make ends meet.
But get in the habit of missing your student loan payments and you run the risk of your loans eventually defaulting, which has a big impact.
The process of defaulting on your federal student loans begins as soon as you miss a payment. Here are the three steps that lead to the fault:
- The first day after missing a payment: Your federal student loans are considered past due and you may be charged late fees.
- After 90 days or more of non-payment: Your loan officer reports the delinquent account to the three major credit bureaus, which means it shows up on your credit report and can adversely affect your credit score.
- After 270 days, or about nine months, overdue payments: Your federal loan is in default and you could see your debt go into collection.
Federal student loan borrowers may have worried about missing their monthly payments thanks to the Covid relief that has been in place since the passage of the CARES Act in March 2020. Until October 2021, federal student loan payments are suspended, interest rates are set at 0% and there is no collection on overdue loans.
Outside of this forbearance period, however, delinquent loans can have a crippling effect on other areas of your life and finances. Here’s what you need to know:
What happens if you don’t pay off your federal student loans
There are serious consequences for defaulting on your federal student loans. Here are a few examples highlighted on the Federal Student Aid website:
- Losing eligibility for federal benefits like repayment plans, deferral, and forbearance
- Be cut off from additional federal student aid
- Have tax refunds withheld and / or part of your wages garnished to repay the overdue loan
- Risk of being sued by the loan manager to collect the debt
- Endanger Social Security retirement benefits
- Negative impact on your credit score
Track your credit score
Tracking your credit score can help you see how choosing to pay (or not pay) your student loans is impacting your financial well-being.
You can check your FICOÂ® score for free from online resources like Experian Boost â¢ and Discover ScoreCard. Access your VantageScoreÂ® for free with Capital One’s CreditWiseÂ® and Chase Credit Journey.
What happens if your private loans are in default
While federal student loans are not in arrears until 270 days of late payment, borrowers with private student loans are subject to the rules of their loan providers. It is important to read your loan manager’s terms and agreement, as well as to contact a customer representative if you are unable to repay your debt.
The consequences of defaulting on your private loans vary from lender to lender, but they can include reporting your late payment to the credit bureaus or sending your debt to a third-party collection agency. You also risk being sued by your lender for repaying the overdue loan. The loss of the lawsuit could end up triggering a wage garnishment or possible foreclosure of your home, depending on your state’s laws.
It is best to check with your lender for any forbearance program as soon as possible to avoid these serious consequences.
What to do if you are at risk of defaulting on your loans
Act quickly by talking to your loan officer right away about how you can get back on track.
For federal student loan borrowers, your options may include switching to an income-based repayment plan so you have a more affordable monthly payment, changing your monthly payment due date, streamlining your repayment through a direct consolidation loan or the option of deferral or forbearance.
Federal loans offer all kinds of protections to help make your monthly payments more manageable, so we do not recommend that federal loan borrowers seek refinancing to avoid default. By refinancing with a private lender, you lose all of your federal loan protections.
In contrast, private student loan borrowers may consider refinancing, as private loans do not offer the same protections and benefits.
Refinancing your private student loans can allow you to streamline multiple payments into one monthly bill. You might also be able to get a lower interest rate if you qualify, which can make your monthly payments more affordable.
Private student loan borrowers should consider SoFi student loan refinancing, which Select has ranked as the best overall student loan refinance lender for its low interest rates and payment protections for borrowers. SoFi also stands out with its own Career Advisory Group to help members search for new employment, and offers access to live customer support 7 days a week. In addition, SoFi members benefit from career coaching. free and financial advice from planners.
SoFi student loan refinancing
No origination fees to refinance
Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans
Types of loans
Variable rates (APR)
From 2.24%; from 2.37% for medical / dental residents (rates include a 0.25% discount on automatic payment)
Fixed rates (APR)
From 2.99%; from 3.12% for medical / dental residents (rates include a 0.25% discount on automatic payment)
From $ 5,000; over $ 10,000 for medical / dental residence loans
Minimum credit score
Authorize a co-signer
At the end of the line
It’s crucial that you pay your federal and private student loans on time to avoid default. You may have more time to make a payment and avoid default with federal student loans than with private loans, but in either case, it’s best to act right away if you’re worried about paying your bills. .
If you’re already in default, or think you’ll be in default after Covid’s forbearance period on federal loans ends, don’t wait and contact your agent today to see what your options are.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of Select’s editorial staff and have not been reviewed, endorsed or otherwise approved by any third party.