We all know that paying our bills on time is important. But sometimes life gets in the way. It may be an unexpected medical crisis, a job loss, or the expense of moving into a new apartment that leaves you without enough left over to make every payment on time.
Perhaps your salary just isn’t enough to cover the rising cost of living in your area. Or occasionally, while it’s tough to admit, you might just forget to make a payment by the due date.
If you’ve run into trouble paying your student loans, take some comfort in the fact that your situation is pretty common. One million people default on their student loans each year, and researchers estimate that 40% of all borrowers will default by 2023. That’s no surprise when you consider that cumulative student loan debt has reached $1.53 trillion .
You may be wondering, “What happens if I miss a loan payment?” Continuing to not pay your loan will have consequences, but you have options for getting back on track.
Before we dive in, it’s important for you to know that this is an incredibly complex topic. We’re going to try to break it down the best we can, but please understand that this info is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice. SoFi always recommends that you speak to a professional about your unique situation.
Here’s a breakdown of what happens if you miss a student loan payment and some paths forward:
What Happens If I Miss a Federal Student Loan Payment?
Starting from the day after you miss a payment, your loan is considered delinquent. Even if you start making the next payments, your account will remain delinquent until you make up for the missed payment or receive deferment or forbearance.
Once 90 days pass, your loan servicer will let the major credit reporting agencies know that your loan is delinquent. Your credit score will take a hit, making it more difficult to qualify for good terms on loans or credit cards or to rent an apartment.
If you continue not paying, your loan will go into default. For federal loans, the government will wait 270 days. Default on your student loan has serious consequences . The entire amount you owe on your loan, including interest, becomes due immediately.
You won’t be able to take out any other student loans, and you’ll no longer qualify for deferment or forbearance or be able to choose your own mortgage, car loan, or other forms of credit. The government may take your tax refund or federal benefits to pay off your loan. You may also have your wages garnished, meaning your employer will take part of your paycheck and send it to the government to be applied toward the loan.
It’s rare, but the government can also sue you at any time—there’s no statute of limitations. You may also be responsible for collection fees, attorney’s fees, and other costs. In other words, you do not want to default on your student loans. (If you do, options exist for getting out of default.)
What Happens If I Miss a Private Student Loan Payment?
Private lenders usually give you much less leeway than the federal government. Exactly what happens if you miss a payment depends on the company’s policies and your loan terms. A private lender can tack on late fees and transfer your loan to a debt collection agency.
Also, private lenders can sue you if you stop paying your student loans. If they win, a court can sign a judgment allowing them to garnish your wages. States set the statute of limitations for lawsuits about payment of private loans; the time period usually ranges from three years to a decade . But the lender can continue trying to collect the debt for as long as they want.
Will My Loans Eventually Go Away If I Can’t Pay?
If you ignore your student loans, they will not go away. Other debt, such as mortgages or car loans, can be discharged during bankruptcy, but student loans generally cannot. There are a few specific cases in which federal student loans can be forgiven, cancelled or discharged.
This includes suffering from a total permanent disability or having your school close while you’re attending or soon after you leave. But it’s very rare that you can legally stop paying your loans altogether, even if you didn’t finish school or can’t find a job in your industry.
What If I’m Experiencing Financial Hardship?
If you are having a tough time with your finances or are putting off making a late student loan payment, don’t just ignore your loans; instead, approach your lender or loan servicer to discuss your options.
For federal loans, you might be able to qualify for a deferment or forbearance, allowing you to temporarily stop or reduce payments. If you’re in deferment, depending on the type of loan you have, you may not be responsible for paying the interest that accrues during the deferment period. Among other reasons, you can apply for deferment if you’re in school, in the military, unemployed, or not working full-time.
You can apply for forbearance if your student loan payments represent 20% or more of your gross monthly income, if you’ve lost your job or seen your pay reduced, if you can’t pay because of medical bills, or if you’re facing another financial hardship, among other things. Private lenders are not required to offer relief if you’re facing hardship, but some, including SoFi, do.
What If I Don’t Expect My Situation to Change Anytime Soon?
Deferment, forbearance, and relief offered by private lenders are temporary solutions. If your financial hardship looks like a long-term issue, you’ll need a permanent fix.
With federal loans, you may be eligible for an income-driven repayment plan. The government currently offers four plans that aim to make payments affordable by tying them to your monthly income. Which plans you qualify for depends on the types of loans you have and when you took them out.
The payments range between 10% and 20% of your discretionary income, and if you make them on time, the balance is eligible to be forgiven in 20 or 25 years, depending on the plan. Private lenders don’t offer similar plans, and they aren’t required to.
But it’s always worth explaining your situation to the lender and seeing if they can work with you on a feasible repayment plan. It’s in their interest to continue collecting even partial payments from you, rather than seeing payments stop altogether and having to go through the trouble of lawsuits or referrals to collection agencies.
Why You Should Consider Refinancing
Another potential long-term solution to unaffordable payments is student loan refinancing. With a private lender like SoFi, you can refinance federal student loans, private loans, or both. This involves obtaining a new loan to pay off all of your old ones and committing to the new terms and interest rate.
Refinancing your student loans makes sense if you qualify for a lower interest rate, which, depending on the term you choose, may be able to cut down the money you spend in interest over the life of your loan. Or, if you choose a longer term than you originally had when refinancing, you could lower your monthly payments, which can make the loan more affordable for you now (though of course the lifetime cost of the loan would be higher).
When you refinance with SoFi, you won’t pay any origination fees to refinance, and if your financial situation improves down the line, you won’t face prepayment penalties. It takes just two minutes online to figure out whether you qualify and the potential rates you can obtain.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.