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

The On-Ramp Period

To help borrowers readjust to the resumption of student loan payments, the Biden administration has implemented a 12-month "on-ramp" from October 1, 2023, to September 30, 2024. During this period, missing payments won't lead to default or delinquency. The Department of Education won't report missed payments to credit bureaus or debt collection agencies, providing a temporary safety net.

However… it's crucial to understand that interest on the loans continues to accrue during the on-ramp. If payments don't cover at least the interest, the outstanding balance will increase. For instance, a borrower with $38,000 of student debt and a 4.5% interest rate could accrue around $1,700 in interest over 12 months. When payments resume, none of the payment will go toward the principal until the outstanding interest is settled.

Missed Opportunities for Loan Forgiveness

Another significant consequence of not paying during the on-ramp is the missed progress toward student loan forgiveness through income-driven repayment plans. These plans, designed to make payments affordable based on income, offer forgiveness after 10 to 25 years of on-time payments. Not making payments during the on-ramp could delay or even eliminate the possibility of loan forgiveness, leaving borrowers with a longer repayment journey.

The Aftermath of Ignoring Payments

Once the 12-month on-ramp period concludes, the consequences of not paying your student loans become more severe. The Department of Education will resume debt collection efforts, reporting delinquencies to credit bureaus after 90 days of missed payments. After approximately nine months (270 days), the loan goes into default.

Defaulting on federal student loans triggers immediate repayment of the full debt amount, along with collection costs that could increase the balance by up to 24%. The government can seize tax refunds, garnish wages, and even target federal benefits like Social Security. Defaulted borrowers lose eligibility for repayment plans, making the financial burden even more challenging.

The Real Cost of Not Paying

Refusing to pay your student loans can result in significant financial repercussions. Garnished wages, increased debt due to collection costs, and the loss of federal loan benefits are just the beginning. While the government can't repossess your car directly, it may put liens on your assets, potentially leading to repossession or forced sales.

The Bottom Line.

Ignoring student loan payments during the on-ramp might seem like a temporary relief, but the long-term consequences can be financially devastating. The best course of action is to resume payments if possible or explore alternative options, such as income-driven repayment plans, to ensure a manageable and sustainable path toward loan repayment.

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