The national pause on federal student loan payments is officially coming to an end. That’s right. After January 2022, you’ll need to make payments on your federal student loans again for the first time since March 2020. 

Yet, as you know, the economy still isn’t where it was pre-pandemic. And you, like many Americans, might be struggling financially. So, you’re not alone if you find yourself thinking, “I already know I can’t pay back my student loans. What should I do?” 

It’s a question worth answering. Because the consequences of not making your payments on time can be serious and long-lasting. 

So, in this post, we’re going to look at what happens if you don’t pay your student loans. We’ll also be sharing 6 things you can do to manage your student debt — even if your next monthly payment is asking for more money than you currently have to spend. 

But first, we need to answer a question that’s currently on a lot of people’s minds…

What Happened to Biden Canceling Student Loan Debt? 

As someone with student debt, you surely remember the excitement. On the campaign trail for the 2020 presidential election, there was a lot of talk about canceling federal student loan debt. 

Sure, most of that talk came from progressive candidates like Senators Bernie Sanders and Elizabeth Warren (in fact, they’re still talking about it). 

But President Joe Biden seemed to be on board with canceling some federal student loans too. Just see the video clip below. 

So… what’s up? Why hasn’t your debt disappeared entirely? Well, it’s complicated. 

But it boils down to Biden’s argument that it may not legally be within his power to cancel or forgive debt for all student loan borrowers through executive action. He either wants the support of both Democrats and Republicans in Congress — something he’s unlikely to ever get on this issue — or more certainty that he has the legal authority to cancel the debt without them. 

To be fair, though, the Biden administration has canceled some student debt. To date, he’s canceled around $11.5 billion of student loan debt for borrowers that fall under various categories. It just may not be the kind of debt you have. 

Will he ever get around to wiping out at least some of your student loans? Maybe. As we discussed in our previous post on Biden’s plan for student loan forgiveness, it’s not guaranteed. 

So, you either need a plan to pay your student loans or a strategy for what to do if you can’t. Because the negative consequences are too serious to ignore…

What Happens If You Don’t Pay Student Loans?

We’re sure you’d rather not think about your student loan payments. But you do need to make the monthly payments on time. Because if you don’t, you’ll soon be faced with one of the following problems.  

Delinquency

Once you miss a monthly payment, your student loans gain delinquency status. And, while still repairable, it can make it hard to maintain or improve your credit score

After 90 days of being delinquent on federal student loans, your late payments are reported to all of the major credit bureaus. With private student loans, your loan servicer may report your delinquency much sooner than that. The majority report just 30 days past the due date. 

The longer you delay your payments, the worse your credit score will be. And, if you didn’t already know, this can have significant consequences in the short and long term. For example, having a bad credit score can make it nearly impossible to get a new credit card, borrow money from banks, rent an apartment, get approved for car loans, apply for federal student aid for graduate studies, etc. 

On top of the damage done to your credit score, you’ll also face late fees when you miss your payments. For federal student loans, you’ll typically be charged 6% of your original payment amount. For private student loans, you’ll pay late fees that are either a predetermined percentage of the missed payments or a flat fee. 

Default 

If you don’t catch up on your missed payments, eventually your student loans enter default. And, in this stage, it becomes incredibly hard to repair the damage.

For federal student loans, you’ll enter student loan default once your payments are more than 270 days past the due date. For private student loans, you’ll typically enter default after your payment is more than 120 days late. 

The consequences of student loan default are quite serious. And the impact on your current and future finances shouldn’t be underestimated. Some of the most significant negative consequences include: 

  • Your credit rating will drop significantly 
  • You’ll lose opportunities for federal student aid if you ever decide to go back to school 
  • You’ll have a harder time taking out any type of loan from a private lender
  • Your cosigner may have to step in and pay your student loans for you
  • Your tax refund may be withheld 

All of these outcomes for defaulted loans can lead to a significant amount of stress. And it’s stress that is unnecessary because you have options to avoid it. 

What You Should Do If You Can’t Pay Your Student Loans 

If you already know you won’t be able to make your next student loan payment, don’t wait until you’re consistently missing on time payments to figure out how to respond. 

Here are 6 things you can do if you can’t pay your student loans but want to avoid the negative consequences we just mentioned above. 

#1 – Enroll in an Income-Driven Repayment Plan

Did you know that you have options when it comes to how much you pay per month on your federal student loans? In fact, you can have your payments adjusted to fit your current income if you enroll in one of the Income-Driven Repayment plans. 

Depending on your discretionary income, your minimum payments could be as little as $0/month. Yep, you’re reading that correctly. Now, bear in mind that even if you actually end up with $0/month payments, your outstanding debt will continue to grow due to accrued interest. So, you’re still better off paying whatever you can each month to chip away at the balance.

The point is that enrolling in an Income-Driven Repayment plan can help make the amount of your monthly payments manageable for your budget and help you avoid delinquency. At Scholly, we recently launched Scholly PayOff to help you enroll in the best Income-Driven Repayment plan and reduce your monthly payments

#2 – Discuss Options with Private Student Loan Lenders 

There’s no guarantee. But if you’re already sure that you can’t pay your next private student loan bill, check with your loan servicer to see what your options are. This strategy applies mostly to private student loan servicers, as the options for paying back federal loans are regulated by the Department of Education. 

Depending on your circumstances, you may qualify for a special repayment plan. For example, Sallie Mae offers several repayment options for private student loans.

#3 – Refinance Private Student Loans  

If the terms of your student loans (e.g. interest rate, loan term) are what’s making the payments unmanageable, you might want to consider refinancing. 

By refinancing your student loans, you work with a private financial institution to trade your federal or private loans for a new loan with a more manageable set of terms. Depending on your goals with refinancing, this strategy can result in lower interest rates, decreased monthly payments, longer repayment terms, and money saved in the long term.  

Refinancing is typically a better strategy for private student loans than federal student loans. Why? Because one of the cons of refinancing is that you lose out on major federal student loan benefits. For example, once you refinance, your federal student loans are no longer eligible for loan forgiveness, which comes with all federal Income-Driven Repayment plans.

#4 – Consider Student Loan Consolidation 

If you have multiple student loans, federal and private, you may consider replacing them with one direct consolidation loan. This could make tracking your student loan payments more manageable. You may also benefit from lower monthly payments since you’d receive a longer repayment term.

By consolidating your loans, your interest rate on the new loan becomes the weighted average of your current student loans. This may benefit you for some of your loans. But it may also make more sense to pay off your high-interest student loans first so that you don’t end up paying more than you would have on low-interest student loans. 

One more thing! You also only get to consolidate your federal loans once. So, it’s important to really weigh the pros and cons of consolidation beforehand. 

#5 – Look into Student Loan Forgiveness Programs 

If you’re pursuing a career in certain industries – such as government, military, healthcare, education, nonprofit, or law – you may qualify for student loan forgiveness programs. 

Typically, you’ll need to have worked full-time in one of these fields for at least 10 years. Even then, you’ll need to apply for these competitive programs and meet other eligibility requirements. But, if awarded, you’ll have a portion of your debt eliminated. 

For more information, check out our post on how to apply for student loan forgiveness programs. In that post, we also discuss President Biden’s October 2021 update to the Public Service Loan Forgiveness program! 

#6 – Apply for Forbearance or Deferment 

If none of the options we’ve mentioned so far work for your situation, then you may need to consider applying for forbearance or deferment. 

Forbearance 

The current national pause on student loan payments is considered forbearance. But you can also apply for forbearance as an individual borrower. When you apply, your student loan servicer lets you temporarily pause payments for 12 months or less. 

What’s the catch? Your loan balance increases during that time due to the interest that’s added monthly. Both federal and private lenders offer forbearance.  

Deferment 

Deferment also puts a pause on your student loan payments for up to 3 years without any added interest on federally subsidized student loans (interest does get added to private and unsubsidized federal loans). 

But not all student loan borrowers are eligible to apply. For example, as a federal student loan borrower, you can only apply to defer your student loans if you’re:

  • Enrolled in school at least part-time or a full-time graduate fellowship 
  • Serving in the military or Peace Corps 
  • Experiencing economic hardship 
  • In a full-time rehabilitation program 
  • Undergoing treatment for cancer 
  • Temporarily totally disabled 
  • Unemployed 

Some private lenders also offer deferment. But you’ll need to check with your lender for their specific requirements.

Key Takeaways 

No one enjoys thinking about their student loan debt. But, as we’ve shown when discussing what happens if you don’t pay student loans, the consequences of not planning ahead are too serious to ignore. 

If you miss your payments for too long, your loans can become delinquent or enter default. As a result, you’ll be charged late fees, face a serious drop in your credit score, and have to deal with many more scenarios that can negatively impact your finances for years to come. 

But you still have time to figure out your next move! As we’ve shared in this post, you can: 

  • Discuss options with private lenders for special repayment programs 
  • Enroll in an income-driven repayment plan for federal student loans 
  • Consider refinancing private student loans 
  • Explore student loan consolidation 
  • Look to see if you qualify for student loan forgiveness programs 
  • Apply for forbearance or deferment 

And if you decide you’d rather just put your attention towards paying off your student loans, be sure to also check out our post on how to pay student loans fast and our list of ways to make an extra $500 a month!