Should You Ever Stop Paying Your Student Loans? Before You Decide, Read This

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You’re struggling. You’re not earning any money. You can’t pay the rent, which means that you need to learn how to defer your student loans payments or file for forbearance because there is no way you can make a payment. But is it a good idea to stop paying your student loans?

In this post, we’ll lay out your options and consider…

What happens if you stop paying student loans
Deciding to stop paying your student loans
How to realistically pay back your student loans
The bottom line on halting student loan payment

What happens if you stop paying student loans

One of the worst choices that you can make is to stop paying loans without doing anything else. When you cease repayment, you face financial penalties. These penalties can vary between federal and private student loans.

The head-in-the-sand option — more or less ignoring student loans hoping that they’ll go away — likely won’t work, either.

Delinquency

Your loans become delinquent as soon as your payments are late, even if it’s just by a day. After falling behind 90 days on payments, a loan servicer will report your delinquency to the three major credit bureaus. This can affect your ability to sign up for utilities, get insurance, obtain a cell phone plan and pass a credit check when you need to lease an apartment.

Default and collections

Your loans end up in default when your payments become 270 days overdue. In this case, you’re massively late on your loan payments, so your loans enter the next phase.

In default, the full balance of your loans becomes due immediately. If you can’t pay — and most debt holders can’t — your loans may go to collections.

If your loans are in collections, your lender or servicer has passed your debt onto someone else in an attempt to collect the money owed. For federal loans, the collections agency may pile on fees to your student loans.

With added fees, the government will take more aggressive action to attempt to collect the money from you. A few things that could happen:

  • You could be sued. You may be taken to court in an attempt to get you to pay your debt.
  • Your wages could be garnished. The government can intercept up to 15% of your disposable pay before you’re even able to touch your paycheck.
  • Your tax refund could be intercepted. Additionally, a portion of your Social Security benefits could be intercepted.
  • Besides the additional fees, your credit could be destroyed. (Yes, student loans affect your credit score.) Late payments, loans in collections, defaults and more can ruin your credit score.

If you have a cosigner, their credit will take a hit, too.

Deciding to stop paying your student loans

The decision to stop paying your student loans isn’t one to be considered lightly.

Some people have fled the country to avoid their student loans, though there are many reasons why this is not a realistic solution. Others argue thatsaving for retirement should be prioritized over paying down your student loans.

If you’re young and stop paying your loans, you can cripple your credit score and ruin any chance of getting a mortgage or other loan for a long time. While you might accept this prospect, going down this path takes serious consideration.

In many cases, your loans simply aren’t going to go away. Instead, it’s often best to explore all other options first.

How to stop paying student loans

There are options that can postpone your student loan repayment before you decide to just stop paying without taking further action. While none of these options is guaranteed to work, they can be worth asking your servicer about.

The following are the most common options.

Deferment

Deferring student loans means that you’ve stopped making payments. With a deferment, you’re typically not responsible for paying interest charges on subsidized loans; these include direct subsidized loans, federal Perkins loans and subsidized federal Stafford loans.

Deferment is only available in select cases. With federal loans, you’ll have to apply with a form specific to your situation. Here are a few examples of deferment:

  • If you’re unemployed and can’t find a full-time job that allows you to pay off your student loans
  • If you’re enrolled in college classes at least half time
  • If you’re participating in a qualifying fellowship program
  • If you’re dealing with economic hardship
  • If you’re serving in the Peace Corps
  • If you’re serving in the military on active duty

How long can you defer student loans? It is available for an indefinite period in many cases, except those of unemployment and economic hardship. For these two cases, you’re limited to three years.

Deferment is not universally available for private student loans. However, some lenders, like SoFi and CommonBond, do offer it in certain situations. Those situations are not always clear — for example, CommonBond wants you to contact customer service for more information on deferment — so check with your lender to see what it offers.

If you’re not eligible for deferment, you may still be eligible for forbearance. Note that deferment and forbearance are often described interchangeably, so you’ll want to double-check with your lender if it offers either program to make sure you’re eligible.

Forbearance

Forbearance is nearly the same as deferment with one key exception: student loan interest will continue to accrue on all loans, subsidized or not.

For federal student loans, forbearance cases are separated into two categories: general and mandatory.

General, or discretionary, cases include financial hardship or illnesses. For discretionary forbearance, it’s up to your servicer to grant forbearance.

For mandatory cases, servers must grant forbearance if you meet the criteria. Mandatory forbearance situations include that:

  • Your loan payments are 20% or more of your gross income
  • You’re a professional in the education field and qualify for student loan forgiveness for teachers
  • You’re serving in a national service position, such as AmeriCorps
  • You’re serving in a medical or dental internship or residency program

For private student loans, forbearance may be available. Forbearance temporarily postpones your student loan payments in times of hardship.

Sallie Mae is one student loan provider that does offer forbearance in some situations for up to three months at a time — or 12 months total. Check with your lender to see if it offers forbearance as an option.

Bankruptcy

You may have heard that discharging student loans in bankruptcy is impossible, but this isn’t entirely true. Bankruptcy courts will look at a number of factors, such as a good-faith effort to repay the loan and evidence that the hardship will continue. Still, it can be very difficult to get your student loans discharged.

A 2019 article in the Ohio Northern University Law Review looked at bankruptcy, morality and student loans and how undue hardship is decided.

Congress adopted a rule in 1976 regarding student loans meant to prevent abuse of the bankruptcy process. If you have a significant financial crisis on your hands, you may have success. But you should not count on this as a sure thing by any means.

How to realistically pay back your student loans

If you have decided that walking away from your student loans is not an option, you need to find a way to make your payments. When you cannot fit the payment into your budget, it is time to start looking for new options.

Make interest-only payments

If making payments on your debt’s principal is not an option, consider making interest-only payments. Choosing to make payments on your debt’s interest is a way to help stop the burden from growing out of control.

The interest payment on your loan will likely be smaller than the complete principal and interest payment, so it may fit into your budget better.

Move to an income-driven repayment plan

Although you will still have to make payments, moving to an income-driven repayment plan is a possibility. You may be able to significantly reduce your monthly payment.

Here are your income-driven options:

These are good options if you’re looking to fit your student loan payments into your budget.

Apply for forgiveness

Many student loans can’t be forgiven. But, in certain situations, you may be eligible for forgiveness.

The Public Service Loan Forgiveness program can forgive your student loans if you work for an eligible governmental agency or nonprofit for 10 years. You will need to also make 120 qualified payments during that time period.

There are other options for some professions, such as the Teacher Loan Forgiveness program. Do some research to see if your profession has options.

Refinance your student loans

Another way to possibly lower your monthly payment is to look into refinancing your student loans. To qualify for refinancing, you’ll have to meet certain credit score and income requirements. The requirements will vary, so do your research with different lenders.

You may be able to lower your monthly payment to something that will fit into your budget.

The bottom line

Stopping your student loan payments altogether can have dire consequences. Unless you are planning to live off the grid where your credit score doesn’t matter, you should look into other options. You can find ways to lower your monthly payment or temporarily delay your student loan payments instead of making a credit-destroying move and walking away from your loans forever.

Sarah Sharkey contributed to this report.

Interested in refinancing student loans?

Here are the top 9 lenders of 2021!
LenderVariable APREligible Degrees 
1.88% – 6.15%1Undergrad
& Graduate

Visit Splash

1.88% – 5.64%2Undergrad
& Graduate

Visit Earnest

2.50% – 6.85%3Undergrad
& Graduate

Visit CommonBond

1.89% – 5.90%4Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.39%5Undergrad
& Graduate

Visit SoFi

1.88% – 5.64%6Undergrad
& Graduate

Visit NaviRefi

1.90% – 5.25%7Undergrad
& Graduate

Visit Lendkey

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

2.13% – 5.25%8Undergrad
& Graduate

Visit PenFed

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of June 1, 2021.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Interest Rate Disclosure

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.59% APR to 5.79% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.88% APR to 5.64% APR (excludes 0.25% Auto Pay discount). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 36% (the maximum allowable for these loans). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 2.04% and 5.8% to the one month LIBOR. Earnest rate ranges are current as of 6/8/2021, and are subject to change based on market conditions.

Auto Pay Discount Disclosure

You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.

Student Loan Refinancing Loan Cost Examples

These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042.39. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,249.77. Your actual repayment terms may vary.Terms and Conditions apply. Visit https://www.earnest. com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit earnest.com/licenses for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License.

One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America.

© 2021 Earnest LLC. All rights reserved.


3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.


4 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of April 29, 2021. Information and rates are subject to change without notice.
 


5 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates from 2.74% APR to 6.74% APR (with autopay). Variable rates from 2.25% APR to 6.39% APR (with autopay). All variable rates are based on the 1-month LIBOR and may increase after consummation if LIBOR increases; see more at SoFi.com/legal/#1. If approved for a loan your rate will depend on a variety of factors such as your credit profile, your application and your selected loan terms. Your rate will be within the ranges of rates listed above. Lowest rates reserved for the most creditworthy borrowers. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license #6054612; NMLS #1121636 (www.nmlsconsumeraccess.org). Additional terms and conditions apply; see SoFi.com/eligibility for details. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.


6 Important Disclosures for Navient.

Navient Disclosures

1. NaviRefi loans are made by Earnest Operations LLC, a member of the Navient family of companies, subject to individual approval and underwriting criteria. California residents only: Loans made or arranged pursuant to a California Finance Lenders Law license. Additional terms and conditions apply.

– To qualify, you must be a U.S. citizen or non-citizen permanent resident of the United States, reside in a state we lend in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.navirefi.com/help-and-questions. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Loan terms are subject to eligibility. Approval and interest rate depend on the review of a complete application. Loan approval is subject to confirmation that your debt-to-income, free cash flow, credit history and application information meet the minimum requirements. You must have a minimum FICO score to be considered.

– You can choose between fixed and variable rates. Fixed interest rates are 2.75% – 6.04% APR (2.50% – 5.79% APR with Auto Pay discount). Starting variable interest rates are 2.13% – 5.89% APR (1.88% – 5.64% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.

– You can take advantage of the 0.25% Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. NaviRefi rate ranges are current as of June 1, 2021 and are subject to change based on market conditions and borrower eligibility.

– The information provided on this page is updated as of 06/1/2021. Earnest Operations LLC reserves the right to modify or discontinue (in whole or in part) this loan program and its associated services and benefits at any time without notice. Check www.navirefi.com for the most up-to-date information. Terms and Conditions apply. Call 855-284-4893 for more information on our student loan refinance product.

– Earnest Operations LLC – NMLS #1204917, CA CFL #6054788 – 535 Mission St., Suite 1663, San Francisco, CA 94105.
Navient Solutions, LLC – NMLS #212430 – 123 Justison St., Wilmington, DE 19801. Visit https://navirefi.com/lending-licenses for a full list of licensed states.


7 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 04/07/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.


8 Important Disclosures for PenFed.

PenFed Disclosures

Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.89%-4.78% APR and Variable Rates range from 2.13%-5.25% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.