What Happens If I Can’t Pay My Student Loans?

Deferment, Forbearance, Default, and Collections Explained

Struggling to make student loan payments can feel overwhelming. Whether it’s due to job loss, medical expenses, or simply the rising cost of living, many borrowers reach a point where they ask the same question: What happens if I can’t pay my student loans?

The short answer is that you usually have options before serious consequences occur—but ignoring the problem makes things much worse. This article explains what happens when you can’t pay, walking step by step through deferment, forbearance, default, and collections, and what each stage means for your finances and future.

First: Missing a Payment Doesn’t Mean Immediate Disaster

If you miss a payment, your loan does not instantly go into default. Student loans move through stages, and the early ones are meant to give you time to recover.

However, time matters. The earlier you act, the more control you keep.

Deferment: A Temporary Pause on Payments

What Is Deferment?

Deferment allows you to temporarily stop making student loan payments due to specific qualifying circumstances.

Common reasons include:

• Enrollment in school at least half-time

• Unemployment

• Economic hardship

• Military service

• Certain graduate fellowships or rehabilitation programs

What Happens to Interest?

• Subsidized federal loans: The government pays the interest during deferment.

• Unsubsidized federal loans and private loans: Interest continues to accrue and may be added to your balance later (capitalized).

Pros of Deferment

• Payments are paused

• No delinquency or credit damage

• Interest may not grow on subsidized loans

Cons of Deferment

• Not everyone qualifies

• Interest can increase your total balance

• It’s temporary, not a long-term solution

Bottom line: Deferment is one of the best options if you qualify, especially for subsidized loans.

Forbearance: Relief When You Don’t Qualify for Deferment

What Is Forbearance?

Forbearance also pauses or reduces payments, but it’s usually easier to qualify for than deferment.

There are two main types:

• General forbearance (granted at the lender’s discretion)

• Mandatory forbearance (required by law in certain cases, such as medical residency or high debt-to-income ratios)

What Happens to Interest?

Interest always accrues during forbearance, for both federal and private loans. If unpaid, it is often added to your principal balance.

Pros of Forbearance

• Easier to qualify

• Prevents immediate default

• Provides short-term breathing room

Cons of Forbearance

• Interest grows quickly

• Can significantly increase total repayment cost

• Not meant for long-term hardship

Bottom line: Forbearance can help in a crisis, but it’s financially costly if used too often or too long.

Delinquency: When Payments Are Late

Before default comes delinquency.

What Is Delinquency?

Your loan becomes delinquent the day after a missed payment. It remains delinquent until:

• You make the payment, or

• You enter deferment, forbearance, or another repayment arrangement

Consequences of Delinquency

• Late fees (especially for private loans)

• Negative credit reporting after 30–90 days

• Increased stress and lender contact

Delinquency is a warning sign—not the end of the road.

Default: When Things Get Serious

What Is Default?

Default occurs when you fail to make payments for an extended period:

• Federal student loans: Usually after 270 days (about 9 months) of nonpayment

• Private student loans: Varies by lender, often much sooner

Once a loan is in default, the rules change dramatically—and not in your favor.

Consequences of Default

1. Credit Damage

• Default is reported to credit bureaus

• Credit score can drop by 100 points or more

• Stays on your credit report for years

2. Loss of Benefits

You may lose access to:

• Deferment and forbearance

• Flexible repayment plans

• Eligibility for additional federal student aid

3. Entire Balance Becomes Due

This is called acceleration. The lender can demand immediate repayment of the full loan balance.

Collections: When the Government or Lenders Take Action

Once in default, your loan may be sent to collections.

Federal Student Loan Collections

The federal government has powerful collection tools, including:

Wage Garnishment

• Up to 15% of your disposable income

• No court order required

Tax Refund Seizure

• Federal and state tax refunds can be taken

• Applied directly to your loan balance

Social Security Offsets

• Part of Social Security benefits may be withheld

Collection Fees

• Fees can be added, significantly increasing what you owe

Private Student Loan Collections

Private lenders must usually sue you first, but they can:

• Take you to court

• Obtain judgments

• Garnish wages (depending on state law)

• Freeze bank accounts

Bottom line: Collections are aggressive, stressful, and expensive.

Can You Recover After Default?

Yes—but it takes action.

Options for Federal Loans

Loan Rehabilitation

• Make 9 affordable payments over 10 months

• Removes default status from your credit report

• Restores eligibility for benefits

Loan Consolidation

• Combine defaulted loans into a new loan

• Faster than rehabilitation

• Default remains on credit report

Options for Private Loans

• Negotiate a settlement

• Set up a payment plan

• Refinance (rare if already in default)

• Seek legal advice if sued

What You Should Do If You Can’t Pay Right Now

Here’s the clear, practical advice:

1. Do Not Ignore the Problem

Silence leads to default. Communication creates options.

2. Contact Your Loan Servicer Early

Ask about:

• Deferment

• Forbearance

• Income-driven repayment plans (for federal loans)

3. Lower Your Payment If Possible

Federal income-driven repayment plans can reduce payments to as low as $0 based on income.

4. Document Everything

Keep records of calls, emails, and approvals.

5. Seek Help If Needed

Nonprofit credit counselors or student loan advisors can help you navigate options.

The Emotional Side: You’re Not a Failure

Student loan trouble is not a moral failing. Millions of borrowers struggle, even those who did everything “right.”

What does matter is how you respond:

• Acting early keeps doors open

• Delaying limits choices

• Taking control reduces long-term damage

Final Thoughts

If you can’t pay your student loans, the situation unfolds in stages—deferment and forbearance first, delinquency next, then default and collections if left unresolved. Each step brings increasing consequences, but also signals a chance to intervene.

The key takeaway is simple and honest:
The system is far more forgiving when you engage with it early.

If you’re struggling, don’t wait for default to force your hand. Reach out, explore your options, and take the next manageable step forward.