The most common question we get from young people with student loan debt is:
“What will happen if I ignore my student loans?”
If you only get one message from our site, puh-leease make it this:
DO NOT IGNORE YOUR STUDENT LOANS!
Ignoring your student loans will enact a chain of events that can quickly snowball into an irreversible financial disaster we call student loan default. It should be avoided at all costs.
Missing One Payment
Missing one payment results in a late fee. The size of the fee depends on your lender’s policy. Your lender will contact you to see what’s up and to inform you of the penalty. The rep discusses options that might be available to you, such as deferment, forbearance, Income Based Repayment, changing your payment schedule, consolidation, etc.
A Few Missed Payments
Late fees are starting to pile up. You’re getting phone calls and emails from your lender urging you to consider your options and warning you of the perils of student loan default.
270 Days Later …
You fail to make a payment for 270 days. You have reached the bad place: student loan default.
Your account goes into collections. You no longer are considered in repayment and owe the entire balance immediately. Interest continues to accrue, and what’s worse: most lenders have a policy of doubling or even tripling a borrower’s interest rate if they go into default. The amount you owe balloons dramatically.
Student loan default entails a laundry list of heinous repercussions. This list comes straight from the web site of the guarantor of one of my loans, Great Lakes. You can view the original page here.
What Happens If You Default (Don't Pay)?
Defaulting on your federal student loans (failing to make a payment for 270 days) has serious consequences. If you default:
• It will be reported to credit bureaus, making it harder to get a loan for a car or a home.
• Your federal income tax refund can be intercepted and applied to your loans.
• A portion of your wages can be held by your employer and applied to your loans.
• You'll be ineligible for deferments and forbearances, as well as future financial aid.
• You might receive calls from collection agencies at home or work and you'll be assessed significant collection fees.
• If you have a professional license from a state agency, it may not be renewed.
• Your school may withhold services such as official transcripts or letters of recommendation.
• The federal government may pursue litigation against you.
These consequences are no joke. If you’re still not convinced that ignoring your student loans is the absolute worst way to deal with your college debt, go here.. Click on any state and read the user submitted accounts of what happens if you go into default.
