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This Is What Happens If You Don’t Pay Your Student Loans (And Yes: It’s Very, Very Bad)

Having trouble keeping up with student loan payments? Do NOT stick your head in the sand! The consequences for defaulting on student loans are more severe than you even imagine.

What happens when you don't pay your student loans?In June, the Brookings Institute, an organization that studies economic issues, reported some good news: Americans aren’t really being crushed by student loan debt to the degree that the media implies. The average balance of outstanding student loan debt for households that carry any at all is $25,700. The median, a figure many believe is more accurate than an average, is $13,000.

They also found that households carrying student loan debt earn an average of $71,700 per year. According to the number crunchers, this means such households should be able to repay their student loans.

But even the study’s authors admit that there are many people who aren’t so lucky. Seven percent of people are more than $50,000 in debt from higher education. They also noted that those who took out loans to attend college, but then dropped out, suffer tremendously come repayment time. “Among households with some college but no bachelor’s degree, the incidence of debt increased from 11 to 41 percent,” they wrote.

That got me thinking. What happens to people who just stop repaying their student loans because they can’t afford them? I know plenty of people who don’t earn anywhere near $71,000 per year but still owe the government or private lenders for their education.

This may shock the economists at Brookings, but according to the Wall Street Journal, one in five people can’t repay their student loan debts.

I reached out to Heather Jarvis, an attorney specializing in student loan training for professional advisors, to find out.

The government just starts taking your money

Student loans come from the federal government or private lenders like banks. Because the government loans offer lower interest rates and more flexible repayment options, Uncle Sam is usually the first stop for an aspiring co-ed.

Undergraduates can take out:

  • Up to $5,500 per year in Perkins Loans depending on financial need and other aid
  • $5,500 to $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans

And if you can’t pay the feds back come repayment time, they’ll find a way to get their money anyway.

“The federal government has extraordinary collection powers,” Jarvis says. “They can garnish wages without a court order, seize tax refunds, intercept other federal benefits, including social security within limits, and prevent borrowers from accessing additional financial aid to return to school.”

You have to miss payments for nine months before the federal government will start seizing your money, but rest assured, they will when they find you. Imagine getting your paycheck one week only to discover that up to half of it is gone.

Even bankruptcy — the last-resort safe haven for debtors in way over their head — won’t help you with federal student loans which, like tax debts, are not dischargeable in bankruptcy. In many cases you can wipe away credit card debts and medical bills, but not those student loans.

You may also get sued

When a student needs more money than the government will give, they often turn to private lenders. Americans owe more than $150 billion to private student loan lenders.

Unlike the feds, if you can’t repay your private loans, they must sue you in order to kickstart the collection process.

If they win (they usually do), they can hire a collection agency to come after you. “Third party collection agencies use aggressive tactics,” Jarvis says.

You can expect phone calls all day long, at home and at work. (If a collection agency is harassing you for any debt, learn your rights).

Private lenders don’t allow you to miss payments for as long as the government does. “Private student loans have many default triggers, typically including just one late payment,” Jarvis says.

And, of course, your credit score will take a beating

Credit agencies won’t disclose the formula they use to calculate credit scores. “But we do know that every report of late payment has the potential to lower credit scores, and a default notation will also serve to lower a credit score,” Jarvis says.

In other words, expect a ding to your score every time you miss a payment.

The lower your credit score, the more you’ll pay for (or be unable to obtain):

  • car insurance
  • a mortgage
  • car loans
  • credit cards
  • cell phone plans

A low credit score may even make you unemployable. A study found that 60 percent of companies check some, or all, applicants’ credit scores.

What to do if you can’t pay

Don’t just cross your fingers and hope they’ll never forget about you. They won’t. After all, the federal government made $50 billion off of student loan repayments in 2013.

If you can’t make the payment, try to negotiate the amount you owe or ask for a grace period. “Federal loan servicers will often accept less than full payments for a period of time and can arrange for temporary postponements or payments based on income,” Jarvis says.

Are you having trouble repaying your student loans? What are you doing about it?

Published or updated on July 28, 2014

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About Patty Lamberti

Patty Lamberti is a freelance writer and Professional-in-Residence at Loyola University Chicago, where she teaches journalism and oversees the graduate program in digital media storytelling. If she doesn't know something about money, you can trust she'll track down the right people to find out. You can learn more about her at And if you have any story ideas, or questions about money etiquette that you'd like her or an expert to answer, email her at


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  1. Jilleen Moore says:

    I borrowed about $20,000 and will have paid over $100,000 if I don’t die before 2030. I have a Bachelor’s Degree and a minor and have worked full time my entire life. This debt is crushing and I feel duped by the pre-packaged education that I was schooled to need, but has barely equipped me to make these payments, which at the age of 18 I indeed did not pay attention to in the fine print. I never imagined such a travesty.

  2. Cole says:

    I have never made a single payment on my $40,000 of student loan debt, and it’s been 6 years. I will never ever pay a cent, & that is by choice.

    Wage garnishment, lawsuits, etc is all complete BS.

    • George says:

      When the Mob, I mean the Federal Government, starts helping the people as much as they help Wall Street and the Banks, I too will start to pay my Student Loans. Until then, they can do whatever they want. I refuse to pay into such an unbalanced and unfair system. My loans are from 1987, started at $11,400. After paying for years and seeing nothing but interest paid, and no dent in the principal, I just stopped paying. Now, the amount owed is $38,700!!!

      No way in Haiti’s am I paying them 3-4x what I borrowed! Pure Piracy!

  3. Great advice Patty! I love how you attacked this: “the government just starts taking your money.”

    I’m convinced that a lot of new students who rack up student loan debt that they can’t pay back think it’s *better* to ignore the debt, turn a blind eye, and hope that once they get a job they can just pick up the payments. But then they never do. Maybe they think that once they start, they can’t stop if they lose their job and can’t afford the payments. Those same students probably haven’t looked at their loan information since sophomore year, or even know the repayment schedule they have. Nowadays, and for those who qualify, with Income-Based Repayment on fed loans, new grads who are struggling financially have little to worry about. I think the minimum payment is $25/month? Less, perhaps.

    “Don’t just cross your fingers and hope they’ll never forget about you.” This is a great line! The federal government will never forgot about you, or about a debt they’re owed. It’s better for students to suck it up, review their options, and make those hard decisions before it’s too late.

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