I Haven’t Paid My Student Loans in Years — Can I Never Pay?

If you’ve not paid your student loan in a long time, consider addressing your debt now. The U.S. Department of Education is running a major student loan forgiveness program. This program has cleared over $44 billion in federal student loan debt for nearly 1 million Americans.

Many more borrowers could see their loans forgiven soon. This is especially likely for those dealing with their loans for over 20 years. This includes people who’ve spent more time in forbearance and deferment than they have in repayment. It also includes those who’ve never enrolled in an income-driven repayment plan and even those who have been in default for years.

So, if you’re wondering whether you should keep not paying your loans or what happens if you never pay back your debt, my advice is to seize on this limited forgiveness opportunity.

Related: Do Student Loans Get Forgiven After 25 Years?

The Education Department is reviewing the accounts of 43 million federal student loan borrowers. They are focusing on providing credit towards forgiveness under income-driven repayment (IDR) plans.

Usually, these IDR plans forgive your remaining loan balance after 20 or 25 years of monthly payments. The duration depends on the type of loan you have, such as undergraduate, graduate, or Parent PLUS Loans. But there’s a significant temporary change to this process.

During the pandemic, the Biden administration initiated a one-time payment count adjustment. This change means borrowers can receive credit towards IDR forgiveness for more than just their actual loan payments. Credit will be given for time in any repayment plan, even if no payments were made. Credit is being awarded for extended periods in forbearance and certain deferment periods.

You can also seize this opportunity, but there’s a deadline. You must act now to benefit from the IDR Account Adjustment program, which will close on April 30, 2024.

The key to getting your loans forgiven after not paying for years is figuring out your loan type and status. You need to know what type of loans you have.

Are they Direct or Federal Family Education Loan (FFEL) Program loans held by the Department of Education? Or are they commercially managed FFEL or Perkins loans?

Related: Privately-Held Federal Student Loans

This information is on StudentAid.gov under the ‘Loan Breakdown’ section. This step is important because it determines your next actions.

For Federally Managed Loans

If your loans are Direct or federally managed FFEL, you’re likely included in the automatic payment count adjustment. This means you could receive credit towards income-driven repayment (IDR) forgiveness for periods in any repayment status, forbearance, deferment, and even before consolidation on consolidated loans.

For Borrowers in Default or With Different Loan Types

For those with loans in default, consider using the Fresh Start program or consolidating your loans to become eligible for the adjustment. If you have commercially managed FFEL or Perkins loans, apply to consolidate them into the Direct Loan program before April 30, 2024. This is a crucial step to receive the benefits of the payment count adjustment.

Related: Student Loan Forgiveness after 25 Years

I’ve helped many people who hadn’t paid their loans in years start repaying them so they can qualify for these new loan forgiveness programs. They all shared the same worry: What if I can’t afford my monthly payments?

I understood where they were coming from.

They battled with their student loan servicers and the Education Department for years to find a payment they could afford. A payment that truly reflected the financial struggles they were facing.

For many of them, the only option they believed they had was to stop making their federal student loan payments altogether. That may have been the best thing they could do then. But now it is different. The landscape has changed.

While President Joe Biden’s broad-based debt cancellation faced challenges and was ultimately shut down by the Supreme Court, his administration has introduced the most affordable student loan repayment option to date. The new income-based repayment plan, known as the SAVE Plan, is designed to offer substantially lower payments than previous plans.

Even clients earning over $200,000 annually, with student loan debt exceeding $500,000, have found relief through SAVE, securing monthly payment amounts lower than their mortgage or rent.

But what if you’re still not ready to start paying?

Wondering what happens if you never pay your student loans? The most immediate impact is missing out on significant loan forgiveness opportunities, such as the account adjustment and Public Service Loan Forgiveness Programs. But the repercussions extend far beyond this:

• Delinquency and Default: Your loan becomes delinquent after the first missed payment. After 90 days, the delinquency and late payments are reported to credit bureaus, hurting your credit score. If payments are missed for around nine months (270 days), your loan enters default status.

• Acceleration and Wage Garnishment: Once in default, the entire unpaid balance and interest are immediately due (acceleration). Your wages can be garnished without a court order, and tax refunds or Social Security benefits may be seized.

• Credit Score Impact: Default status is reported to credit bureaus, likely resulting in a lower credit score. This can make it raise the interest rates you get for home and auto loans or even credit cards.

• Ineligibility for Further Aid: Defaulting on a federal student loan can disqualify you from receiving more federal student aid.

• Increased Debt: Collection fees can be added to your loan balance, increasing the total amount owed.

Note: Recognizing that borrowers might face challenges resuming student loan payments after the 3-year payment pause, the Education Department implemented a 12-month ‘on-ramp’ period starting in October 2023. This period is designed to assist borrowers struggling to make payments.

But remember, this is a reprieve, and the standard consequences for nonpayment will resume after this period.

Related: Can You Go To Jail For Not Paying Student Loans?

Similar to federal student loans, not paying your private student loans also leads to serious repercussions. While private lenders have different limits compared to the federal government, the consequences of defaulting are still significant:

• Delinquency and Default: Your loan is delinquent from the first missed payment and typically enters default after two to three months, varying by lender.

• Late and Collection Fees: Expect to incur late fees and more collection fees if your debt is sold to collections.

• Credit Score Impact: Like with federal loans, defaulting on private student loans damages your credit score and the late payments remain on your credit report for seven years.

• Legal Actions and Wage Garnishment: Private lenders can sue for unpaid debts, potentially leading to wage garnishment if they win the case.

There is one major difference, however.

Private student loans have a statute of limitations, varying from three to 10 years, depending on the state. After this period, debt collection agencies cannot legally enforce debt recovery. This means that it’s possible you can never pay a private student loan and possibly walk away from having to repay the debt.

Related: How to Get Rid of Private Student Loans

You now have a real chance to get your student loans forgiven, even if you haven’t paid your debt in years. But to seize this opportunity, you must meet the eligibility requirements. This means confronting your student loan situation directly.

The Education Department has significantly revamped its student loan program, introducing various options that help borrowers resolve defaulted loans and finding payment plans tailored to their income, family size, and discretionary income.

Navigating these programs can be overwhelming, but you don’t have to do it alone. Our team has successfully guided thousands of borrowers back into repayment and onto the path toward loan forgiveness.

Book a call with us to ensure everything is handled correctly and smoothly.

We’re here to help you quickly and confidently move toward resolving your student loan challenges.