LEXINGTON, Ky. (LEX 18) — Whether you graduated a year or 27 years ago, if you took out a loan to pay for it, the clock is ticking on paying that money back after a three-and-a-half-year pandemic pause.
Student loan repayments resume October 1, but what happens if you don't pay?
A survey from Credit Karma of a little more than 2,000 adults found that 45% of borrowers expect to go delinquent when student loan payments resume.
Accountant and finance expert Dale Morgan created Foundation 47, based in Lexington, KY, to help people answer real-world financial questions like this. He says deciding not to pay can come with serious and long-term consequences.
Still, Morgan says he understands the struggle and fear of addressing financial debt like student loans.
"I can relate to that financial anxiety or financial stress of not being able to make your debt obligations. The first thing I would do is reconcile your account. There are ways and there are options for you if that's not feasible for you," said Morgan."
Since the pandemic, Americans have taken on additional debt while battling inflation and increased interest rates.
Morgan says this is why he hopes those in that situation can take the opportunity now to create a new future.
"Call your lender. Call that person. Try to talk to an actual human being to try to see if you can work out some payment options to make a payment so this actually won't cause you any financial stress and strain," said Morgan.
Morgan says deciding not to pay can impact your credit score, land you in court, and lead to both federal and private lenders garnishing your paychecks or tax returns.
"Which is kind of counterintuitive because you can't afford the payment anyway, so how can you afford to pay all these additional legal fees?" said Morgan.
The Biden administration has given federal borrowers time before facing the consequences of not paying federal loans through a 12-month 'on-ramp' to repayment.
Starting next year, September 2024, the government can take action against you if you become delinquent or fall into default. While you can defer or let your account go into forbearance until then without an impact on your credit score, the interest won't stop.
