The thought of putting your hard-earned money toward your student loans is disheartening. The typical student loan payment ranges from $200–$299 per month. If you could save that money, you could splurge on a vacation or new phone instead. It’s tempting to just stop making payments, isn’t it? But there are significant—and long-lasting—consequences to missing student loan payments. And unlike some other forms of credit, student loan lenders often take extreme measures to collect the money you owe. Here’s what you should know before skipping a monthly payment.
1. You’ll find yourself in default
The first day you miss a student loan payment, your account is considered delinquent. If you keep skipping payments, you could end up in default. It’s a common problem; in fact, about 20% of federal loan borrowers were in default before the COVID-19 relief measures went into effect in March 2020. With federal borrowers, your loans go into default after you don’t make payments for at least 270 days. By contrast, private student loans go into default as soon as 90 days without payments. Once you enter default, your lender will start taking steps to collect the money you owe, and you’ll additionally owe hefty late fees. With federal loans, your loan servicer will charge you 6% of the late payment amount. If you have private student loans, fees vary by lender but are typically around 5% of the late payment amount.
2. Your wages may be garnished
If you’re in default, the lender can seek a court order to garnish your wages. If granted, a portion of your paycheck will be withheld to repay your debt. If you have federal loans, the US Department of Education can garnish your wages without a court order. Under wage garnishment rules, the government can instruct your employer to withhold up to 15% of your disposable income to repay your loans. The law allows you to keep an amount that is equal to 30 times the minimum wage. As of 2021, the federal minimum wage is $7.25 per hour, so $217.50 per week is protected.
3. You could lose tax refunds and Social Security benefits
When you enter default, the US Department of Education can also seize your federal tax refund or Social Security Administration benefits through a treasury offset. According to the IRS, as of June 2021, the average tax refund was $2,775—so losing your refund can be significant. Unlike federal loan servicers, private student loan lenders can’t touch your tax refund or other government benefits. So if you’re considering skipping a payment just to get by, private loans could be safer; although, it’s still not recommended.
4. You could end up in collections
Your lender may send your account to collections, meaning it has hired an agency to recover what you owe. Collection agencies can be persistent and will contact you repeatedly to try to get you to make your payments. If your account is sent to collections, you’ll also have to pay charges and fees related to the agency for doing the work of tracking you down. Common expenses include the collection agency’s costs, court fees, and attorney fees.
5. It may be difficult to qualify for other forms of credit
Entering student loan default can wreck your credit. Your lenders will report the default to the three major credit bureaus—Equifax, Experian, and TransUnion—and it can significantly damage your credit score. If you’re planning to apply for another form of credit, such as a mortgage or auto loan, having a loan default on your credit report can make it difficult (if not downright impossible) to qualify. It can even make it hard to qualify for an apartment or get a new cell phone plan on your own.
6. You may become ineligible for future financial aid
If you plan to pursue a higher degree or certificate program, be aware that defaulting on a student loan can hurt your ability to return to school. You’ll no longer be eligible for federal financial aid, including grants or federal work-study programs. And loss of federal work-study opportunities could put you at a major disadvantage depending on what program you want to attend.
7. You’ll owe the entire outstanding balance immediately
Once you default on your loans, your accounts are accelerated. The entire unpaid balance of your accounts—along with interest—becomes immediately due. You’ll no longer be able to apply for forbearance, deferment, or alternative payment plans. The collection agency will try to recover the entire balance, not just the amount of your late payments. Once it enters collections, you’re also responsible for all the costs your loan servicer incurred. According to the Office of Federal Student Aid, those costs equal to 17.92% of your loan amount on most student loans. For example, if you had a $30,000 loan, you’d owe $5,376 on top of the loan principal and interest to cover collection fees.
What to do if you’re struggling with student loan payments
While you may not think a missed loan payment will hurt anyone, becoming delinquent on your loans or entering default can have devastating effects on your life. To prevent that from happening, use these alternative options to avoid defaulting on your debt.
Contact your loan servicer
Whether you have federal or private student loans, contact your loan servicer as soon as you realize you’re struggling to afford your payments. With federal loans, there are alternative payment options, like deferment or forbearance, that can help. Even though private lenders don’t offer these benefits, they may be willing to help by temporarily reducing your payments or pausing them altogether while you get back on your feet.
Ask about income-driven repayment (IDR) plans
For federal loan borrowers struggling to afford their payments, consider applying for an IDR plan. If you qualify, your new payment will be based on a longer repayment term—20 or 25 years—and a percentage of your discretionary income. If your income is low enough, you may even qualify for a $0 payment. You can apply for IDR plans by contacting your loan servicer or submitting an IDR application online.
The most important thing to do when you’re struggling to make your student loan payments is to take action. There’s no reason you should have to default on your loans if you put in the effort to work through your alternative options. The sooner you reach out to your loan servicer, the better your odds are of identifying a solution and avoiding default.
Find more expert advice on money, loans, and more in our Financial Aid section.