Will Not Paying Back Student Loans Hurt My Credit

Q: Can not paying back student loans hurt my credit? I have not found a job yet, and my student loans have entered into the repayment period and I am worried about how not making the student loan payments could negatively impact my credit score.

A: Yes, student loans need to be treated the same as any other type of debt (credit cards, auto loans, etc.). Making late payments, missing payments, or making no payments at all on your student loans can and will affect your credit profile negatively. For some individuals, paying back student loans can be a financial burden. If you anticipate not being able to make your student loan payments you should act immediately instead of simply ignoring the student loan payments.

Ignoring or defaulting on student loans can and will tarnish your credit score for years into the future. If you are not making payments on your student loans, lenders may be able to start garnishing your wages, or tax refunds, and even worse, they can go after your cosigner’s assets. Not paying your student loans will not make them go away, and in many cases, not making your student loan payments is only going to make your situation worse. If you suspect you will have problems fulfilling your student loan repayment obligations, the first step you need to take is to contact your lender. Student loan lenders are sometimes willing to work with borrowers to help them meet their financial obligations, and depending on the type of student loans, borrowers may have the ability to defer the repayment period and/or qualify for an income-based repayment plan.

Steps To Take If You Can’t Make Student Loan Payments

If you’re struggling to repay your student loans, there are several steps you can take to address the situation and potentially alleviate some of the financial burden:

1. Contact Your Loan Servicer:
If you’re having trouble making your student loan payments, reach out to your loan servicer as soon as possible. They can discuss your options, such as income-driven repayment plans, deferment, forbearance, or loan consolidation. Ignoring your loans can lead to default, which can have serious consequences.

2. Explore Income-Driven Repayment Plans:
Income-driven repayment plans adjust your monthly payments based on your income and family size. These plans can significantly lower your monthly payments, making them more manageable. Examples of income-driven repayment plans include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).

3. Consider Deferment or Forbearance:
If you’re experiencing temporary financial hardship, you may be eligible for deferment or forbearance. Deferment allows you to temporarily postpone payments, typically for specific reasons such as unemployment, economic hardship, or returning to school. Forbearance also allows for temporary payment suspension but may be granted at the discretion of the loan servicer, often for reasons like financial hardship or illness.

4. Look into Loan Forgiveness Programs:
Depending on your profession, you may qualify for loan forgiveness programs. For example, Public Service Loan Forgiveness (PSLF) forgives the remaining balance on Direct Loans after you’ve made 120 qualifying monthly payments while working full-time for a qualifying employer in public service. There are also forgiveness programs for teachers, nurses, and others in certain fields.

5. Refinance or Consolidate Loans:
Refinancing or consolidating your loans may lower your monthly payments or provide better terms. However, be cautious with private loan consolidation, as it may result in losing certain benefits associated with federal loans, such as income-driven repayment plans and loan forgiveness options.

6. Seek Financial Counseling:
Some organizations offer free or low-cost financial counseling services to help individuals manage their debt and create a plan for repayment. They can provide personalized advice and guidance tailored to your situation.

7. Review Your Budget and Expenses:
Assess your budget and look for areas where you can reduce expenses or increase income to allocate more funds toward your student loan payments. Even small adjustments can make a difference in your ability to manage your debt.

8. Understand the Consequences of Default:
If you’re unable to make payments and your loans enter default, it can have serious consequences, including damage to your credit score, wage garnishment, withheld tax refunds, and even legal action. It’s crucial to address your loans proactively to avoid default.

Remember, communication is key. If you’re experiencing financial difficulties, don’t hesitate to contact your loan servicer to discuss your options. They are there to help you find a solution that works for your circumstances.