What Happens If You Don’t Pay Student Loans | McCarthy Law, PLC
October 3, 2016

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

An estimated 40 million people have student loan debt.  That number is at an all-time high, and the average balance is $29,000!  As more and more people are trying to eliminate their student loan debt, the question is often raised: What happens if I don’t pay up?  The answer to that question is…a lot.  Your student loans are backed by the federal government, and there is a lot the Feds can do to make your life uncomfortable.

What Happens When You Stop Making Payments?

If you decide to stop paying your federal student loans, after 90 days, you are considered “delinquent”.  This fact will be reported to all three major credit bureaus, and your credit rating will take a hit.  Bad credit can follow you throughout your life and may affect your ability to have a decent credit card with a reasonable interest rate.  Qualifying for a loan, or a mortgage and even a job might be affected as well. Potential employers can run a credit check on you and may make some character assumptions based on your score.

After 270 days, your loan is officially “in default”.  You’ll be referred to a collection agency, who will do their best to make you pay up.  It may be years later, but once the federal government gets involved, it can get really ugly.  They can seize your tax refund to apply towards your debt, and can garnish a considerable amount of your paycheck to apply towards your debt.

While the government can’t put you jail for owing debt, they will literally follow you to the grave until you pay up.

What Can You Do to Avoid These Scenarios?

The best thing you can do is pay back your student loans.  The upside of debt is that by regularly keeping up your payments, you will improve your credit score.  Additionally, banks are eager to work with you and would rather you pay a portion of your debt than to go into default.  You can contact your bank or other lending agency and discuss a repayment plan that fits your abilities.

There are programs called Income-Based Repayment (IBR), Pay as You Earn (PAYE) and Revised Pay As You Earn (REPAYE) that will help reduce your payments to an affordable level based on many factors.  Some of these factors include your family size and income.  The government may contribute part of the interest on the loan and will forgive remaining debt if you make your payments for a period of years.

How Does Your State Measure Up In Student Debt?

States are ranked for their average student debt rate.  The states with highest student loan debt are New Hampshire, Delaware, Pennsylvania, Rhode Island and Minnesota, where the average debt is over $32,000.  The states with the lowest averages are Arizona, Oklahoma, Nevada, California and New Mexico with an average of just over $18,000.

Hire a debt attorney

Many times you can try to handle debt consolidation by yourself.  However, using a debt attorney puts an expert in your corner.  At McCarthy Law you can expect friendly professionals to help you navigate through this process.  Give us a call today at 855-976-5777.

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