The Real Cost of Ignoring Student Loan Repayments

You know how we've all been chilling without having to worry about federal student loans for the past 3.5 years?

Well, guess what? Starting next month, around 40 million Americans must gear up to repay those loans. It's like a reality check that none of us saw coming. 

Why Paying Up is Smarter 

So, there's this buzz on social media platforms, like Reddit and what we used to call Twitter. People are getting honest about their frustration, especially after the Supreme Court nixed President Biden's loan forgiveness plan. Some are even flirting with the idea of just not paying their loans, kind of like a protest, you know? 

But let me break it down for you: as tempting as that sounds, it's a road leading to severe financial pain.

Betsy Mayotte, the big brain behind The Institute of Student Loan Advisors, warns that dodging your loan repayments is like stepping into quicksand. It only gets worse the more you avoid it. She's seen cases where people think they can outsmart the system but end up in deeper trouble financially. 

Temporary Breathing Space: The On-Ramp 

Here’s a bit of good news, though. The Biden administration is throwing us a lifeline with a 12-month "on-ramp" from October 2023 to September 2024. This period is like training wheels for getting back into the groove of repayments. The Department of Education won’t label your loans as delinquent or default during this time. Plus, they’re keeping it hush-hush from credit bureaus and debt collectors.

But don't get it twisted. This isn’t the same as the payment pause. Your loan is still racking up interest, and if you're not covering at least that, your debt's just ballooning. Imagine, if you owe an average of $38,000 at a 4.5% interest rate, you’re looking at an extra $1,700 on your tab after a year of ghosting your payments! 

Forgiveness Plans: Don't Miss Out 

Another thing to consider: if you're on an income-driven repayment plan, skipping payments means you're missing out on forgiveness opportunities. These plans can wipe your slate clean after 10 to 25 years of consistent payments. Under Biden’s new SAVE plan, this could happen even sooner. So, by not paying during the on-ramp, you might be clinging to a debt that could have been forgiven. 

The Real Deal: Post On-Ramp Consequences 

Post-September 2024, that's when things get real. If you think interest piling up was bad, wait till you hear this. After 90 days of missed payments, your credit score takes a hit. After 270 days, your loan defaults. That’s when the government can come after your tax refunds, wages, and even a chunk of your Social Security. And remember, defaulted loans mean you're out of the loan forgiveness game.

Mayotte puts it plainly: if you think your payments are tough now, just wait till the government  

starts garnishing your wages. We're talking about up to 15% of your paycheck compared to the potentially lower payments under the income-driven repayment plans. 

So, Should You Pay During the On-Ramp? 

In a nutshell, yes. The on-ramp is like a grace period to help us adjust. Ignoring it won’t hurt your credit score, but it’s not doing your wallet any favors in the long run. 

Avoiding the Worst 

Okay, so what if you really don't pay? Could things like wage garnishment or asset repossession happen? The answer is, unfortunately, yes. And while you won't be thrown in jail for skipping your student loan payments, ignoring court orders related to your debt is another ball game that could land you in hot water. 

A Friendly Heads-Up