What Happens If You Don’t Pay Back Private Student Loans?

Not paying back private student loans has serious, long-term consequences. Here’s a breakdown of what can happen:

The Stages of Trouble

• Late Fees: Almost immediately after a missed payment, private lenders will charge you late fees. These add to the total amount you owe.
• Credit Score Damage: Late payments (usually after 30 days) get reported to the major credit bureaus (Experian, Transunion, Equifax). This significantly lowers your credit score, hindering future financial opportunities.
• Delinquency: After a period of missed payments, your loan becomes delinquent. This usually starts around 90 days of non-payment.
• Default: After an extended period of delinquency (often 90-270 days), the lender declares the loan in default. At this point, the entire balance of the loan, plus interest and fees, becomes due immediately.
• Collections: The lender may transfer your debt to a collection agency. These agencies aggressively pursue payment and may use harassing tactics.
• Lawsuits: The lender or collection agency could take you to court to obtain a judgment against you.
• Wage Garnishment: With a judgment, the lender might be able to garnish your wages, taking a portion of your paycheck until the debt is paid.
• Difficulty Obtaining Future Credit: The damage to your credit score makes it difficult to obtain credit cards, auto loans, mortgages, or even rent an apartment.

Important Differences from Federal Student Loans

• Private student loans lack the flexible repayment plans and forgiveness options that federal loans often have.
• There is generally no statute of limitations on private student loan debt unless your state specifically has one.
• Private student loans cannot be discharged in bankruptcy except in extremely rare circumstances.

What to Do If You’re Struggling

• Contact Your Lender ASAP: Don’t ignore the problem. Many lenders have hardship options like temporary forbearance or deferment that could give you breathing room.
• Explore Refinancing: If interest rates have dropped since you took the loan, refinancing might lower your monthly payment, making it more manageable.
• Seek Credit Counseling: Non-profit credit counselors can help you develop a budget and repayment plan.

The Bottom Line

Defaulting on private student loans has devastating financial consequences that can last for years. Avoiding default should be your top priority whenever possible.