What happens if I just don't pay my student loans?
Same thing as for any debt: bank sues you, you lose, you are in an even deeper hole because you now owe them for the cost of the court case, your credit rating goes into the toilet, you may even have trouble retaining/finding a job. Being stupid is always more expensive. employed under the table and doesn't have a bank account If I could make that size 10,000,000 font I would.  Your friend likely also isn't paying taxes.  The student loan penalties will be nothing compared to what the IRS does to you.   Avoid taking financial advice from that person. "Never forget that student lenders and their collection agencies are dangerous and clever predators, and you, the student borrower, are their legal prey. They look at you and think, ""food."" My friend said she never pays her student loans and nothing has happened.  She's wrong. Something has happened. She just doesn't know about it yet. Each unpaid bill, with penalties, has been added to the balance of her loan.  Now she owes that money also. And she owes interest on it. That balance is probably building up very fast indeed. She's playing right into the hands of her student lender. They are smiling about this. When the balance gets large enough to make it worthwhile, her student lender will retain an aggressive collection agency to recover the entire balance. The agency will come after her in court, and they are likely to win.  If your friend lives in the US, she'll discover that she can't declare bankruptcy to escape this. She has the bankruptcy ""reform"" act of 2006, passed during the Bush 43 regime, to thank for this. A court judgement against her will make it harder for her to find a job and even a spouse. I'm not saying this is right or just. I believe it is wrong and unjust to make university graduates into debt slaves. But it is true. As for being paid under the table, I hope your friend intends on dying rather than retiring when she no longer can work due to age. If she's paid under the table she will not be eligible for social security payments.  You need sixteen calendar quarters of social security credit to be eligible for payments.  I know somebody like this. It's a hell of a way to live, especially on weekends when the local church feeding programs don't operate.  Paying people under the table ought to be a felony for the business owner." Collection agencies will eventually find you if you work for an employer that uses the credit bureaus for pre-employment screening, or you sign up for utilities or services that check your credit, or you enter into public record any other way (getting arrested, buying land, etc.). Such inquiries will put you on the grid where the collection agencies can find you and/or sue you. Two years out is about the point where they're looking for blood. The next time your friend applies for an apartment, utilities or cell phone service, she's going to get some calls. "Let me give you some advice from someone who has experience at both ends - had student loan issues myself and parents ran financial aid department at local university. Quick story of my student loan.  I graduated in debt and could not pay at first due to having kids way too early.  I deferred.  Schools will have rules for deference.  There are also federal guidelines - lets not get specific on this though since these change every year it seems.   So basically there is an initial deferment period in which any student can request for the repayments to be deferred and it is granted.  Then there is an extended deferment.  Here someone has to OK it.  This is really rather arbitrary and up to the school/lender.  My school decided to not extend mine after I filled out a mound of paperwork and showed that even without paying I had basically $200 a month for the family to live off past housing/fixed expenses. Eventually they had to cave, because I had no money so they gave me an extended deferment.  After the 5 years I started paying.  Since my school had a very complex way to pay, I decided to give them 6 months at a time.  You would think they would love that right?  (On the check it was clearly stated what months I was paying for to show that I was not prepaying the loan off) Well I was in collections 4 months later.  Their billing messed up, set me up for prepayment.  They then played dumb and acted like I didn't but I had a picture of the check and their bank's stamp on the back... They couldn't get my loan out of collections - even though they messed up.  This is probably some lower level employee trying to cover their mistake.  So this office tells creditors to leave me alone but I also CANNOT pay my loan because the credit collection agency has slapped a 5k fee on the 7k loan.  So my loan spent 5 years (kid you not) like this.  It was interest free since the employee stopped the loan processing. Point being is that if you don't pay the lender will either put your loan into deferment automatically or go after you.  MOST (not all) schools will opt for deferment, which I believe is 2 years at most places.  Then after that you have the optional deferment.  So if you keep not paying they might throw you into that bucket.   However if you stop paying and you never communicate with them the chances of you getting the optional deferment are almost none - unless school doesn't know where you live.  Basically if you don't respond to their mail/emails you get swept into their credit collection process.  So just filling out the deferment stuff when you get it - even if they deny it - could buy you up to 10 years - kid you not.   Now once you go into the collection process... anything is game.  As long as you don't need a home/car loan you can play this game.  What the collection agency does depends on size of loan and the rules.  If you are at a ""major"" university the rules are usually more lax, but if you are at the smaller schools, especially the advertised trade/online schools boom - better watch out.  Wages will be garnished very soon.  Expect to go to court, might have to hire an attorney because some corrupt lenders start smacking on fees - think of the 5k mine smacked on me.   So the moral of the story is you will pay it off.  If you act nice, fill out paperwork, talk to school, and so on you can probably push this off quite a few years.  But you are still paying and you will pay interest on everything.  So factor in that to the equation.  I had a 2.3% loan but they are much higher now.   Defaulting isn't always a bad thing.  If you don't have the money then you don't have it.  And using credit cards to help is not the thing to do.  But you need to try to work with the school so you don't incur penalties/fees and so that your job doesn't have creditors calling them.   My story ended year 4 that my loan was in collection.  A higher up was reviewing my case and called me.  Told her the story and emailed her a picture of their cashed check.  She was completely embarrassed when she was trying to work out a plan for me and I am like - how about I come down tomorrow with the 7k.  But even though lender admitted fault this took 20+ calls to agencies to clear up my credit so I could buy a house.   So your goal should be:"
"To put a different spin on it, suppose you loaned someone $100K, expecting that they would pay it back, and then a little later they decided not too. They are perfectly capable of paying back the money, but just decided they didn't want to, and it seems the laws of your state said you couldn't make them. How would you feel about that? Since this is supposed to be an answer to the question, the answer is: ""only if you can't afford to repay it"". That's what foreclosure is supposed to be about, not you deciding you would rather not pay your debts. Let's not forget who pays that bill for you - every one of your bank's other customers. EDIT:For the people decrying the moral aspect and saying ""it's perfectly alright because the law says that's the punishment and I'm willing to pay it"", the law also says ""if you kill someone, you go to prison for life"". Does that mean that someone who decides they are going to kill someone has a perfect right to do it as long as they are prepared to take the consequences?" "I expect that the loan documents show both you and your ex-partner as ""jointly and severally liable"" for the debt, and thus you're both responsible for it.  It doesn't really matter what other paperwork you have that says otherwise or what other promises might have been made.  Certainly, the other agreements give you legal ground to go after your ex-partner for the money, but they give you no leverage with the bank. If you end up paying this debt off to save your credit, you need to make sure that the account is closed.  Make sure you have paperwork showing it as closed, and showing that it was paid in full, and then keep that paperwork forever. Re #1: I think it will eventually show up on your credit report.  You could ask the bank for proof that you owe the money, if you like, but that will probably just delay the inevitable. Re #2: His bankruptcy filing really has no bearing on you and your obligation to repay the loan.  If he didn't list this debt, then he is still liable for it as well (and you can still go after him under your other agreements).  But either way, you're still on the debt." @littleadv has said most of what I'd say if they had not gotten here first. I'd add this much, it's important to understand what debt collectors can and cannot do, because a lot of them will use intimidation and any other technique you can think of to get away with as much as you will let them. I'd start with this PDF file from the FTC and then start googling for info on your state's regulations. Also it would be a very very good idea to review the documents you signed (or get a copy) when you took out the loan to see what sort of additional penalties etc you may have already agreed to in the event you default.  The fee's the collector is adding in could be of their own creation (making them highly negotiable), or it might be something you already agreed to in advance(leaving you little recourse but to pay them). Do keep in mind that in many cases debt collectors are ausually llowed at the very least to charge you simple interest of around 10%.  On a debt of your size, paid off over several years, that might amount to more than the $4K they are adding.  OTOH you can pretty much expect them to try both, tacking on 'fees' and then trying to add interest if the fees are not paid.   Another source of assistance may be the Department of Education Ombudsman: If you need help with a defaulted student loan, contact the Department of Education's Ombudsman at 877-557-2575 or visit its website at www.fsahelp.ed.gov. But first you must take steps to resolve your loan problem on your own (there is a checklist of required steps on the website), or the Ombudsman will not assist you. To whom is all this debt owed? I would imagine the US gov't, meaning we're really saying that the Federal government and US taxpayer are slowly easing into the role of subsidising post-secondary education, just as state governments fund primary and secondary (though without legislative or judicial action to make the added debt support explicit).  I thought most professors were supposed to be socialist anyway...you'd think they'd take on the needier students for free. The bank will sell your debt to a collection agency, that will then follow you everywhere you go and demand payment. They will put a negative notice on your credit report preventing you from getting any new credit, and might sue you in court and take over some or all of your assets through court judgement. You have not specified what country you are in. That radically changes everything. In case you are in Canada, there's a great blog that covers bankruptcy and student loans, at http://student-loan-bankruptcy.ca/. Fundamentally, in order to discharge government-backed student loans, you must have ceased to be a student for at least seven years prior to filing. Even then, though, the government can object, in which case you will still have to repay some or all of the loan. More generally, given that the collection agency appears to be operating in bad faith, you'll want to ensure that they send you written documentation of any offer they are extending you. If they refuse to do this, you should assume that they aren't actually offering you anything at all and you will have to pay back the full amount plus interest and penalties. Note that, in many countries, if you settle the debt (that is, pay anything less than the full amount plus interest and penalties), this will be a black mark on your credit report. In this case, if you repaid the full $16,000 and they forgave the extra $4,000, they would most likely still add a note to your credit report indicating that you did not pay the full amount that you owed, and this will negatively impact your credit rating even beyond your late payments. So what if someone gets approved for a larger credit card balance and gambles it away?   There's nothing tangible left except for maybe some norepinephrine left in your system...     Honestly if the student loan system dried up for anything in like Liberal Arts, universities would scramble to fill positions in their schools and maybe tuitions would come down to an affordable level.    Right now it's a joke.   People are willing to pay for school and living on res when they get qualified for 100k in student loans.  If the student loans weren't there perhaps they'd live with their parents and work to support their education.   Tuitions should fall to affordable levels if that were the case. The only consequence I could see is that they have your money until they pay you back. I'd just do what JoeTaxpayer says and get it back. You should definitely pay the remaining loan amount as quickly as possible. A loan in bad debts means that Bank has written it off books as its a education loan and there is no collateral. The defaults do get report to CIBIL [Credit Information Bureau India] and as such you will have difficulties getting credit card / new loans in future. Talk to the Bank Manager and ask can you regularize the loan?  There are multiple options you would need to talk and find out; 1. You can negotiate and arrive at a number. Typically more than the principal outstanding and less than interest and penalties charged. 2. You can request to re-do the monthly payments with new duration, this will give you more time. 3. May one time large payment and subsequent amount in monthly payments. At the end its Bank's discretion whether to accept your terms or not. Well, if someone who owes me money defaults, I lose the money he promised to pay me.    To me that would be a huge moral obstacle for declaring myself bankrupt.  I was raised in believing that you keep your promises. Is this true? Yes. Do student loan companies provide predatory lending practices? It appears some do. Does anyone force a student or family to sign the dotted line on their student loans entrapping them in many tough financial years? No. People want to blame others for their problems far too often. How about cash flowing a cheap community college? How about applying for HUNDREDS (yes I said multiple hundreds) of scholarships? How about saving from the age you're able to work until college? How about not picking the most expensive out of state education just because you saw them playing a sports game on ESPN? This system is a mess, I don't disagree there. I think all of this reverts back to the signers of these loans. Plus when people are in massive student loan debt they don't fully commit to getting out of it and working every job possible. If you are struggling with debt and cannot realistically pay your debts off with your current level of income, these businesses offer, for a fee, to negotiate with your debt providers a sum that you can realistically afford to pay. The debt providers will consider the offer because they would rather get some money back rather than nothing (as these are usually unsecured loans). For you it can be a better deal than going bankrupt or trying to struggle endlessly to pay off something you can't afford to pay off. Note, that even though you won't be bankrupt, you will be treated (by lenders) very similar to being bankrupt. In other words, it will be very hard for you to get new loans in the near future. "In that case, he was not arrested for being unable to pay his bill. He received a summons to court, failed to appear, and so a warrant was issued for his arrest. The $350 was his bail amount, which is funds that must be provided to the court in order to be released while pending trial (you get this money back once you appear before court). He also wasn't convicted of a crime and sentenced to jail in this case, just arrested. He would be ""kept"" by the courts (if he couldn't post bail) until his court date as a way of being forced to appear. If a judgement was awarded against him, it still doesn't always mean he has to pay. If someone refuses to pay a judgement (but did show up to court) then typically their wages are garnished, which means the court orders that a certain amount of money be withheld from income, tax refunds, etc. until the judgement is paid. However, if the person ordered to pay can prove that they would not be able to have sufficient money to survive if they are garnished (I'm not a lawyer so I am unclear as to the exact process/standards) then there is a chance that nothing will be garnished at all.  So in short, no, there is no such thing as debtor's prison in the USA. There is definitely such a thing as being arrested / put in jail for defying court orders, and I'm sure if you took out loans while knowing you have no ability to repay them that you might be able to be charged with some sort of fraud, but just not being able to pay your bills doesn't mean you can go to jail. Of course, there is very little protecting you from simply running out of money and becoming homeless, but that's not your question." Some lenders will work with you if you contact them early and openly discuss your situation.  They are not required to do so.  The larger and more corporate the lender, the less likely you'll find one that will work with you. My experience is that your success in working out repayment plan for missed payments depends on the duration of your reduced income.  If this is a period of unemployment and you will be able to pay again in a number of months, you may be able to work out a plan on some debts. If you're permanently unable to pay in full, or the duration is too long, you may have to file bankruptcy to save your domicile and transportation.  The ethics of this go beyond this forum, as do the specifics of when it is advisable to file bankruptcy. Research your area, find debt counselling.  They can really help with specifics.  Speak with your lenders, they may be able to refer you to local non-profit services.  Be sure that you find one of those, not one of the predatory lenders posing as credit counselling services.  There's even some that take the money you can afford to pay, divide it up over your creditors, allowing you to keep accruing late/partial payment fees, and charge you a fee on top of it.  To me this is fraudulent and should be cause for criminal charges. The key is open communication with your lenders with disclosure to the level that they need to know.  If you're disabled, long term, they need to know that.  They do not need to know the specific symptoms or causes or discomforts.  They need to know whether the Social Security Administration has declared you disabled and are paying you a disability check.  (If this is the case, you probably have a case worker who can find you resources to help negotiate with your creditors). For many folks these days, not having a credit card is just not practical. Personally, I do quite a bit of shopping online for things not available locally. Cash is not an option in these cases and I don't want to give out my debit card number. So, a strategy is this: use a credit card for a purchase. Then immediately, or within a couple days, pay the credit card with that amount. Sounds simple but it takes a little effort to do it. This strategy gives you the convenience of a credit card and decreases the interest enormously.