What Happens If You Don’t Pay Your Student Loans?

Student loan debt is one of the most significant issues impacting Americans’ lives today. As of 2024 Q4, the Federal Reserve Bank of St. Louis reported that outstanding student loan debt in the United States exceeded $1.77 trillion.

Please don’t ignore your debt since this can have serious consequences. In most respects, defaulting on a student loan carries the same consequences as failing to pay off a credit card. However, it can be much worse, as the government can take action to recover what’s owed. The federal government guarantees most student loans and can act as a debt collector.

Please note: Former President Biden implemented an income-driven repayment (IDR) plan on June 30, 2023, called the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan was declared unlawful by the Eighth Circuit Court of Appeals (with an injunction filed by a federal district court), and its forbearance period ended on Aug. 1, 2025, the date at which loans began accruing interest again. The Department of Education provides an online loan simulator to help those with federal student debt estimate their monthly payments.

First, You’re Considered Delinquent

When your loan payment is 90 days overdue, it is officially delinquent, which gets reported to all three major credit bureaus. As a result, your credit score can take a hit.

That means new credit applications may get denied, or you may receive a higher interest rate associated with risky borrowers if approved for credit. A bad credit score can follow you in other ways. Potential employers often check the credit score of applicants and can use it as a measure of your character.

Cell phone service providers also check credit ratings. They may deny you the service contract you want. Utility companies may demand a security deposit from customers they don’t consider creditworthy. A prospective landlord might reject your application.

The Account Is in Default

When your payment is 270 days late, it is officially in default. The financial institution to which you owe the money refers your account to a collection agency. The agency will do its best to collect payment from you, short of taking actions that are prohibited by the Fair Debt Collection Practices Act (FDCPA). Debt collectors also may tack on fees to cover the cost of collecting the money.

It may be years down the road before the federal government gets involved, but when it does, its powers are considerable. It can seize your tax refund and apply it to your outstanding debt. It can garnish your paycheck, meaning it will contact your employer and arrange for a portion of your salary to be sent directly to the government.

What You Can Do

These dire consequences can be avoided, but you must act before your loan defaults. Several federal programs are designed to help, such as Stafford or Grad PLUS loans, although these are not available for parents who borrowed for their children.

Debt Forgiveness

Other programs, such as the Income-Based Repayment (IBR) and Pay As You Earn (PAYE), reduce loan payments to an affordable level based on the applicant’s income and family size. The government may even contribute part of the interest on the loan and will forgive any remaining debt after you make your payments over a period of years.

The balance is indeed forgiven, but only after 20 to 25 years of payments. The payments may be reduced to zero, but only while the indebted person has a very low income.

The Public Service Loan Forgiveness Program 

The Public Service Loan Forgiveness Program is designed specifically for people who work in public service jobs, either for the government or a nonprofit organization. People who participate may be eligible for federal debt forgiveness after 10 years on the job and 10 years of payments.

Don’t Wait, Contact Your Lender

Details of these federal programs are available online, as is information about eligibility. It is important to remember that none of these programs are available to people whose student loans have gone into default.

A good first step is to contact your lender as soon as you realize you may have trouble keeping up with your payments. The lender may be able to work with you on a more doable repayment plan or steer you toward one of the federal programs.

One Upside

There is an upside to student debt. If you keep up your payments, your credit score will improve. That solid credit history can be crucial for a young adult trying to secure that first car loan or home mortgage.

Worst-Case Scenario

A true worst-case scenario involved a man who found armed U.S. marshals on his doorstep. He had borrowed money 29 years earlier and failed to repay the loan—the government finally sued. According to the U.S. Marshals Service, several attempts to serve him with a court order failed. Contacted by phone in 2012, he refused to appear in court.

A judge issued an arrest warrant for him that year, citing his refusal to appear in court. When the marshals finally confronted him outside his home, he told CNN, “[I] went inside to get my gun because I didn’t know who these guys were.”

That’s how you end up facing an armed posse of U.S. marshals, with local police as backup, for failure to pay a student loan of $1,500. The man said he thought he paid the debt, didn’t know about the arrest warrant, and didn’t remember the phone call.

However, even this story has a reasonably happy ending. Hauled into court at last, the man agreed to begin paying off his ancient student loan, plus accrued interest, at the rate of $200 a month. After 29 years of interest, the $1,500 debt had grown to around $5,700.

The Bottom Line

The government and banks have an excellent reason for working with people having trouble paying off their student loans. You can be sure that they are as anxious to receive your loan payments as you are to repay your debt.

Remember to alert the appropriate parties as soon as you see potential repayment trouble ahead. Ignoring the problem will only make it worse.