How a Student Loan Bill Can Go From $97K to $236K

There’s been a lot of discussion lately about Americans deciding to not pay back their student loans. While the reasons for purposely defaulting on education debt vary, the consequences are invariably unpleasant: debt collection, wage garnishment, growing loan balances, even lawsuits.

For example: A Connecticut attorney’s student loan debt from law school has more than doubled since he stopped making payments in 2001, and a federal judge has ordered him to repay the higher amount, reports the Connecticut Law Tribune. According to the article and court papers, the lawyer owed $97,658.55 when he consolidated his loans in August 1999, which he intended to tackle through income-contingent repayment. However, he and the government disagreed on what the adjusted payment amount should be. More than a decade later, his balance has ballooned to $236,535, which a U.S. District Court judge recently ordered the lawyer to repay.

That’s just one story of how student loan debt can grow rapidly, but it’s not the only one. Education debt can quickly make a mess of any borrower’s finances. Student loans are rarely discharged in bankruptcy, meaning if you get into financial trouble and can’t make the payments, there’s not much you can do but try to catch up on the debt later. Forbearance and deferment can temporarily alleviate the pressure, but interest continues to accrue on the balance, potentially leaving you with more debt than you had in the first place. Once a borrower defaults on student loans, the lender may pursue the individual through debt collection or a lawsuit. Any income the borrower has may be subject to debt collection, and those who default on federal loans may lose out on future tax refunds and access to government programs like FHA loans.

On top of all that, if you fall behind on student loan payments, you’ll see your credit score suffer, potentially making it difficult for you to get a home or apartment, access affordable pricing on loan and credit products or set up services like utilities or a cellphone plan without having to pay a hefty deposit upfront. In some states, your credit history has an impact on how much you pay in car insurance premiums, too. (You can get a free credit report summary on Credit.com to see how your student loans are affecting your credit.)

There are many reasons to make repaying your student loans a priority, and there are a few ways you can try to make your federal student loan payments more manageable. Before deciding not to pay, it’s important to research your repayment options and consider the long-term financial consequences of student loan default.