Student Loan Payments Have Officially Restarted. What Happens If You Don’t Pay?
After a lengthy pause due to the global pandemic, federal student loan payments have officially resumed. This return to routine has left many borrowers grappling with the practicalities of repayment under a new economic reality. Should a borrower fail to resume payments, the consequences can be significant and long-lasting.
Defaulting on student loans can lead to severe financial repercussions. Initially, missed payments will be reported to credit bureaus, resulting in a lowered credit score. A lower credit score can impede one’s ability to take out a mortgage, secure a car loan, or even get approved for rental housing. Additionally, borrowers may face late fees, which exacerbate the financial burden by increasing the total amount owed.
As time progresses without payment, loans may enter into default status—a scenario that unfolds after roughly nine months of non-payment for federal student loans. Once in default, the entire balance of the loan becomes due immediately, and the government has strong collection powers not often found with other types of debt.
The most immediate enforcement tool is the Treasury Offset Program, which allows federal payments such as tax refunds or Social Security benefits to be diverted towards unpaid debt. Likewise, wages can be garnished without a court order; up to 15% of disposable pay can be deducted by employers and sent directly toward loan repayment.
Beyond these financial penalties, there are personal ramifications. Defaulting on student loans can strip borrowers of eligibility for further federal student aid, making it hard or impossible to return to school and improve one’s earning potential. It may also affect professional licensing in some states.
For those unable to afford their monthly payments upon restart, options are available such as income-driven repayment plans which set monthly payment amounts based on income and family size. Furthermore, individuals facing economic hardship should contact their loan servicer immediately to discuss deferment or forbearance options.
Ignoring student loan obligations leads to increasingly severe consequences and digging out from under them becomes more challenging over time. Therefore, it’s vital for individuals with outstanding student loans to take action—whether that’s resuming regular payments or seeking assistance—to avoid these negative outcomes.