What happens if you don't pay your student loans?

 

The Clock is Ticking for Student Loan Borrowers

Payments are set to resume in October. That deadline is approaching quickly, but as Brian Chung reports, some people say they can't afford to pay, and others say they simply won't.

The Struggle of a Single Mom

Josie Bridges is a single mom living paycheck to paycheck. She shares the challenges of rising prices at the store.

Josie:
"My student payments are sitting right now at about $400 is what they're expecting each month. So I mean, that's my food budget right there."

The Pandemic Freeze and Josie's Salon

The pandemic freeze on student loan payments allowed Josie to open her own salon in Portland, OR. But with $4,000 in outstanding debt from her Community College degree, she says she simply won't be able to make the monthly payments once they resume in October.

Josie:
"Now I realize that it's kind of out of my hands at this point if I can't. I get it. I can't make it. It's a game changer."

The Biden Administration's Forgiveness Plan

The Biden administration's plan to forgive up to $20,000 in student debt would have wiped Josie’s slate clean. Instead, a challenge from six Republican states resulted in a Supreme Court decision in June striking down the plan after Josie had already invested thousands of dollars into her salon.

Josie:
"I'm disappointed and I'm confused. It's too inconsistent. I don't know what's going to happen in the future, and that's kind of scary."

Reporter:
"If the administration was able to cancel all the debt, what would that have done for you?"

Josie:
"Given me financial freedom."

The Broader Impact on Borrowers

The median student borrower has between $20,000 to $25,000 in outstanding debt. Over 40 million borrowers will face interest accrual beginning in September, with the first payments in over three years due in October.

The Call for a Repayment Boycott

Some are taking to social media, calling on borrowers not to pay.

Social Media Post:
"Does the US government just think we're going to go back to paying student loan payments? Like what? It's going to ruin my credit score?"

The Risks of Non-Payment

Education Secretary Miguel Cardona warns that it's a risk people shouldn't take. The loans are still there, and repayment is still needed. Failing to pay comes with serious consequences, including wage garnishing and significant credit score hits. However, for now, the government says borrowers won't face those penalties if they miss payments.

Cardona:
"We know many of our borrowers are going to struggle to make payments, but we want to make sure that we're not sending their name to credit agencies, so we're going to hold them harmless for a year as they're getting back up."

Exploring Options for Relief

Among longer-term options for relief are employer repayment assistance programs and the SAVE program, which adjusts monthly bills based on borrowers' income. Josie is weighing her options but says it's going to be tough either way.

Josie:
"At this moment, it's either come up with money to pay for these now student loans that I'm having to pay or make it to where my business doesn't function as it needs to."

Bracing for the Debt Cliff

Josie is one of millions bracing for the debt cliff this fall.