How to Manage a Student Loan

Consequences of Not Paying Student Loans

What can you do when your loan is past due?
What can you do when your loan is past due?

If you've created a good budget and managed to read and understand the deferment rules of your lender, you shouldn't ever need to default on a loan. And, although many lenders will allow a delinquency in payment for up to 270 days before the loan enters default, you don't want to put yourself in this situation. Because, once you have defaulted on a loan, there aren't many options for turning back.

To keep a default out of your future, if you're late on a payment, the first and most important thing to do is call your lender and explain the situation. The bottom line is, lenders want you to pay off your loans, so they'll do what they can to help make that happen. However, if you fail to make a payment or do not request a deferment, your loan will be in default.

Student loans are one of the few types of loans not generally dischargeable with bankruptcy. If you default on a student loan, a number of consequences will result including:

  • Your loans will be turned over to a collections agency.
  • You can be sued for the amount of the loan.
  • Your wages can be garnished.
  • Your tax refunds can be intercepted.
  • You'll lose social security benefits.
  • Your credit will be damaged.

When your lender sends your loan to a collection agency, you'll have substantially more debt to deal with. This includes collection costs, late fees and other charges -- and of course, the remainder of what you still owe on the loan.

When deferment, forbearance and forgiveness aren't an option and you know a default is imminent, not all is completely lost. It is possible to consolidate your loans before you enter default. Since a consolidation is technically a new loan, you'll be given another period to begin repayment. This will buy you a bit more time to get your budget in order and begin repaying the loan.