It might seem tempting to just keep not making payments, but the consequences can be severe, including a hit to your credit score and exclusion from future aid and benefits.
More than 40 million Americans will have to start making payments again under the terms of a debt ceiling deal approved by Congress, though many could see their balances reduced or erased if the Supreme Court allows President Joe Biden’s student loan forgiveness plan to go ahead. A decision is expected this week, though the court appeared ready to reject the plan.
Student loan interest will start accruing on September 1 and payments will restart in October. That means tough decisions for many borrowers, especially those in already-difficult financial situations.
Experts say that delinquency and bankruptcy should be options of last resort, and that deferment and forbearance — which pause payments, though interest may continue to accrue — are often better in the short term.
WHAT HAPPENS IF I DON’T MAKE STUDENT LOAN PAYMENTS?
Once the moratorium ends, borrowers who can’t or don’t pay risk delinquency and eventually default. That can badly hurt your credit rating and make you ineligible for additional aid and government benefits.
If you’re struggling to pay, advisers first encourage you to check if you qualify for an income-driven repayment plan, which determines your payments by looking at your expenses. You can determine this by visiting the Federal Student Aid website. If you’ve worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which forgives student debt after 10 years.
Carolina Rodriguez, Director of the Education Debt Consumer Assistance Program at the Community Service Society of New York, emphasizes that anyone temporarily unemployed should be able to qualify for a $0 payment plan. And many others qualify based on income and family size.
“The repercussions of falling into delinquency can be pretty severe,” Rodriguez said. “The federal government can administratively intercept tax refunds and garnish wages. And it can affect Social Security, retirement, and disability benefits. Does it make financial sense at that point? Probably not.”
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