What Happens If You Can’t Repay Your Student Loans?

Alyssa has a bachelor's degree and around $12,000 of student loan debt. "That was from my first attempt at college in 2010 to 2012," she says. "I went back to school starting in 2016 and worked hard and hustled my way through school so I accrued no additional debt. The $12,000 has been with me for 10 years."

While Alyssa’s parents had saved some money in a 529 college savings plan, and her grandparents contributed, "it wasn't much. I was expected to get scholarships for the remainder, but I didn't bother applying for any, so I took out loans,” she says. “I don't even remember signing for my loans at age 18, and I know I was completely unaware of the amount or the debt I was signing up for. I was just thinking of how fun college would be."

"I went to college straight out of high school and started enjoying the 'college experience,' aka partying hard on the weekends," Alyssa continues. "However, my drinking progressed. By the time I'd completed five semesters, I started drinking every night. Within six months, I was drinking around the clock. I was an alcoholic, I knew I was an alcoholic, but I couldn't stop drinking and didn't really know how to stop drinking."

Although Alyssa wanted to finish school, she was barely able to attend class, let alone study or complete coursework. She enrolled in the spring semester for 2012 and the fall semester for 2013, but she ended up withdrawing from both. "My parents and I still had to pay for the tuition due to my late withdrawal date both times," she says.

"I got sober in October of 2014, as I was dying of alcoholism — I had acute pancreatitis, alcoholic hepatitis, kidney failure, malnutrition, dehydration, multisystem organ failure, and bleeding esophageal varices," says Alyssa. "I was unemployable and constantly sick, drunk, and hungover. I kept drinking, even as I was vomiting blood and unable to move from pain. When I went to the hospital, I had a BAC of .39 and I went through acute delirium tremens for five days in the ICU."

After eight days in the hospital, Alyssa went straight into in-patient treatment. “I had no money, I was being evicted by my landlady, I owed $1,200 on a maxed-out credit card, my Perkins and Stafford loans were in default, and I had negative $13 in my bank account (thank you overdraft fees)," Alyssa says. "The first time I applied for a credit card, about a year later, I was unsurprisingly denied — they informed me on the written statement that my credit score was in the 300s. I didn't know credit scores went that low."

"I was getting multiple calls daily from my student loan servicers and the bank asking for the thousands I owed them," she continues. "I was in default on those student loans from 2012 until about 2015, when I started making minimum payments based on my income. My income was tiny, so the payments were tiny. When I started community college in 2015, the loans were deferred. Money was so tight for me at the time that I was happy to not have to pay those bills any longer, small though they were."

How would she feel if her student debt disappeared? "I would feel lighter," she says. "But since I got sober seven years ago, I've rebuilt my life in many ways. The most important step has been my spiritual program of recovery. I have also taken intentional actions to repair my financial situation. I worked a lot of very long hours and difficult jobs, I worked hard, I've been saving like crazy and I continue to practice very, very frugal habits."

This has allowed Alyssa to build up "a giant emergency fund, six figures in investments, and a quarter million dollar net worth" over the past few years, she says. "Once I went back to school — and now with the COVID deferments — my student loans were deferred, so I decided as long as I wasn't accruing interest, I preferred to continue my extremely high saving/investing rate and once the loans come due, my plan has been to pay each off in one transfer. I paid my Perkins loan off when it came due earlier this year — around $5,000 — and I will do the same in May when the Stafford loan comes due — around $8,000."

"If my student loan debt were magically erased, I would use that money, which is already set aside, in a few different ways — I would put some towards travel with my husband. We want to go to Australia this year!" says Alyssa. "I would invest a good chunk in my individual brokerage account. And I would use the remainder to give back to my community."

Maggie has a bachelor of arts degree and graduated with a little over $50,000 in student loans. "My parents took out a loan for me to attend college. Absolutely there was an expectation [that I pay it off]. It was my learning and my degree, both of which do not benefit them. It was a huge favor, and there was never any doubt that I would pay them back," she says.

"My parents work hard for their money and I personally don’t believe parents should be financially responsible for a child’s education. Gifting money is not wrong, necessarily, but expecting them to pay for a loan — a big one! — for a degree they didn’t receive… yeah, no. That’s not cool," Maggie continues.

She says that if all her student loan debt were gone tomorrow, she would be able to save for a house more quickly. "Like way more quickly. It’s so hard out here for millennials, and really everyone else," Maggie says. "Also, I’d be able to start building an emergency reserve. When emergencies arise, out come the credit cards, and we know what that can lead to."

Rhianna has a masters degree and graduated with $100,000 in student loans. She currently has $87,000 left. "I couldn't afford to make both the private loan payments and the federal loan payments, so I defaulted on my private loans," she says. "My private loan payment was $1,000 per month, and at the time I was making $45K per year."

"My grandmother paid for my airfare to study abroad and she also co-signed for my private student loans," Rhianna says. "When I couldn't afford to pay them back, she paid them off. This caused a huge rift in our relationship. She disinherited me and stopped talking to me. She told my mother I wasn't her granddaughter anymore."

"Eventually, as she got older, I would continue to send her birthday wishes and holiday greetings," she continues. "Once I had my own child, she forgave me and we are now on speaking terms. Apparently, she put me back in her will. I saw her for the first time in five years recently."

Without the loans, she would have been able to start saving for retirement much earlier. "I have absolutely no money for retirement," she says. "I have about $5K in a Roth IRA and I'm 37."

Suzy has a Master of Fine Arts degree. She didn't have any debt from her undergraduate degree, as her parents helped pay for it. But she owes roughly $40,000 for her master's. "For my undergraduate schooling, my parents wanted to help pay if I went to a school where they could afford to help," she says. "For graduate school, it was all loans, and I went with the rose-colored glasses view that I'd be in a position to repay those loans easily once I had completed my degree."

That turned out to not be the case. "I didn't have the extra money to pay student loan debt, so I went into default," Suzy says. "After graduating from my master's program I went through a divorce. Before continuing my education, I had very limited work experience because I had been the main caregiver for our five children. Post-divorce support payments helped but didn't come close to covering living expenses, even combined with the income from my part-time job."

Suzy says that paying off her loans was “impossible” and adds that "the number was intimidating." She didn't make payments for a year. But then, things changed. “When a loan repayment officer called me at work, it scared me enough to face the problem,” she says. “I went into the program to get in good standing again with my loans by paying $10 a month for nine months.”

"After that point I was able to go into the income-driven repayment option," she continues. "The total monthly payment ended up being $0. While I'd like to pay off my debt, right now I can only do minimal payments that wouldn't make a dent in what I owe. My education helped me to get my current full-time job, which I'm grateful for, but not having years of experience beforehand means I'm still at the lower end of the income scale and working my way up."

Without her student debt, Suzy would have "peace of mind that I'd be able to retire someday," she says. "I'm in my mid-40s and I feel like I'll have to work the rest of my life in some capacity in order to keep a roof over my head."

Gwen has a master's degree. She graduated with $51,410 in student loan debt and has $39,303.80 left to pay off. "When I first moved to New York City eight years ago, I stopped paying my loan for a year, until I made enough money to start paying off my loan," Gwen says.

"When I finished grad school, my parents graciously — or so I thought — paid my loans with the intent that I would pay them back," she says. "I've been paying them ever since, and while the interest is lower, it feels impossible to get the payment down year to year. I've been paying this off since 2012. Owing your family money is impossibly difficult and puts an extra strain on our already tenuous relationship. I've asked my parents to decrease or stop the interest payment in a plea to get me out of this debt — which they have refused. I'm unfortunately going into a marriage with this debt and feel guilty that it will become our burden.

Blythe has a bachelor's degree. "I took out a bank loan that my mother co-signed," she says. She also got loans from the Ontario Student Assistance Program (OSAP).

"I graduated with just over $60,000 in debt and almost 11 years later, I still owe around $15,000, which is devastating," she says. "Monthly school loans on top of a mortgage, car payments, childcare, and daily living is just overwhelming."

Over the 11 years she’s had the debt, Blythe has had times when she’s stopped her repayments for various reasons. "The first time was when I graduated. They expected payments within six months of graduating, which doesn't leave much time to find 'that job' that can allow those heavy payments while trying to settle into new non-student housing or moving back home with your parents,” she explains. “They offered me six months of interest-only payments. That's it. I still had payments, albeit not as heavy as the full amount."

A few years later, Blythe had to stop repayments again after injuring herself at work. "I called them to inform them that I wasn't able to work due to a severe injury that left me immobilized," she says. "My worries fell on deaf ears. Two months later, I got a call from the OSAP and the Canada Revenue Agency demanding I make payments. I remember the conversations like yesterday. They asked, 'Can you make a one-time payment of $30,000?' I was floored, scared and yet found it almost comical. I replied, 'Can anyone make a one-time payment of $30,000?'  I can assure you, good tax man, if I was sitting on 30 Gs, I would have paid off the hounds at my door monthly," she says.

"Now, they offered a six-month payment pause when the pandemic first happened but I know that I am one of many people who lost their jobs during the pandemic and still aren't able to find adequate employment," Blythe says. "They offer no repayment assistance for those that are married, or if your spouse has a decent job. What they don't understand is that my husband works a lot but we're still barely scraping by! We have a child, we have a house and cars to get us back and forth. We work — but it seems not enough."

Without the student loan debt, Blythe could pay her bills regularly. "I can't afford to pay everything, so every month there's always something that gets pushed and doubled for the following month — like missing my cell phone bill to pay my student loans, which auto withdraw now. Gotta love that when you accidentally bounce a payment for being so financially strapped, they think you should pay a non-sufficient funds fee. Are you kidding me? If I can't pay the bill owed for the loans, where do you think I am going to get the NSF fee from? Come on!"