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What Happens If You Pay Less Than The Minimum Payment on Student Loans?



Question: I realize if you don’t make any student payments at all, your loan will go into delinquency and then default. At that point the government can garnish your wages and take any tax refunds you may have coming. MY question is: What if I’m making payments, but they aren’t the full payments that were set up under my income-based payment plan? For example:  My payments are to be around $490 a month, but what if I can only send in $250 a month? Will they still garnish wages and take my refunds?Sabrena in Pennslvania

Andrew Pentis, certified student loan counselor at Student Loan Hero, responds…

Sabrena, it sounds like you’re already aware of the severe consequences of not repaying student loans. To avoid delinquency and default, however, let’s review some of the details.

When making a payment is still a late payment

First of all, a partial payment is still a late payment. Submitting anything less than your income-based repayment (IBR) plan will trigger delinquency. So, if your minimum payment comes out to $490 per month, you’re going to have a problem.

Despite this, sending $250 to your servicer is still a good idea, since it will apply to your outstanding balance. However, it’s approximately a half payment – and won’t be enough to keep you in good standing.

After all, delinquency [1] starts the first day you miss a payment, and it’s followed by potential fees and dings to your credit report.

[For more information, read What Happens If I Can’t Pay My Student Loans?]

When your wages can be garnished

To your second question, yes, the Department of Education could also garnish your wages, withhold your tax refund, and even deduct funds from Social Security benefits. That’s only a possibility, however, after your loan enters default status. To avoid having your delinquency turn into default, you would need to repay your pending balance within 270 days.

To prevent default, it’s best to contact your loan servicer as soon as possible. Explain why you’re having trouble coming up with the $490 you need to keep pace with monthly payments.

You are able to pause your repayment plan via deferment or forbearance. You’ll need to have a great excuse, though, like a job loss or a stack of medical bills.

An Unemployment Deferment Request [2], if approved, could stall your dues for up to three years, for example. Just be aware that interest accrues during any delay in making payments, so you would return to repayment facing a larger balance.

What to do now

IBR plans make your monthly dues more affordable. So if your $490 payment isn’t feasible based on your wages and doesn’t fit within your budget, something’s amiss. Perhaps you didn’t recertify your income and family size with your servicer — that could have increased your monthly payment to what you would have paid on the standard, 10-year repayment plan.

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Whatever the cause of your unwieldy payment amount, there are a few more solutions to consider…

  • Switch repayment plans. Even if you’re already using IBR, see if you can lower your monthly payments by switching to another plan. Use the Department of Education’s Repayment Estimator [3] to see which of their six repayment plans fits your finances best.
  • Try a consolidation loan. If you have multiple federal loans, you could reduce your payments by consolidating (or grouping) them into one new loan with the loan servicer of your choice. The consolidated loan would result in a single monthly payment and could help you qualify for other income-driven repayment plans if needed.
  • Look into student loan refinancing: With excellent credit and stable income (or a cosigner who has both), you could lower your federal loan payments through private refinancing. Like consolidating through the Department of Education, you’d be left with a single loan to repay.

Refinancing is unique because it could also reduce your interest rate. If you lengthen your loan term during refinancing, however, you’ll lose out on those reduced-rate savings. But before considering refinancing – which is irreversible – be absolutely sure you won’t miss federal loan protections like IBR, deferment and forbearance, and loan forgiveness options.

No matter what measure you take to manage your repayment, try carving out more room in your budget. By prioritizing student loan payments over less-necessary expenses, hopefully, you can make at least the minimum payment. Then you can avoid nightmarish scenarios like wage garnishment and draw closer to the dream of being debt-free.


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