(NerdWallet) – Autoworkers and screenwriters aren’t the only Americans taking to the picket lines to better their conditions; some federal student loan borrowers also want in.
“A student debt strike is about politicizing nonpayment collectively. Instead of doing things as individuals, we are doing them together as a united front,” the Debt Collective, a debtors’ union organizing the strike, explains on its website. With the goal of forcing the government to broadly erase student debt, the group is asking borrowers to pay $0 per month on their student loans through avenues like applying for borrower defense to repayment, signing up for the new income-driven repayment plan, going back to school or using the 12-month student loan on-ramp.
The White House is currently pursuing a student debt cancellation “plan B” via another legal pathway, but it could take a year or more to roll out — and success is far from guaranteed.
Although a debt strike may seem attractive, borrowers should be aware of the consequences of not paying their federal student loan bills when they come due in October.
Risks of going on a student debt strike
During the on-ramp
Historically, collections activity and credit report damages have been two of the most significant consequences of defaulting on student loan debt. This risk is temporarily averted, however, because the government will institute a 12-month student loan “on-ramp” period starting Oct. 1, 2023.
During this time, the government encourages borrowers who can afford to make their payments to do so. But, if you can’t, the on-ramp gives you some time to get your finances in order. If you don’t pay, the government won’t send your accounts to collections, nor will it send negative information to the credit bureaus.
But even with those threats gone, you’ll face two main problems if you don’t pay during the on-ramp:
- Interest charges build. During the on-ramp, interest accrues on your debt. If you don’t make payments, you aren’t chipping away at the principal or the interest, so your overall repayment cost will be higher.
- No progress toward loan forgiveness. If you are hoping for loan forgiveness through Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) forgiveness, any missed payments won’t count toward the necessary number of payments, so it will take more time to qualify.
After the on-ramp
The on-ramp will end on Sept. 30, 2024. After that, the consequences of missing payments become much more severe.
After a payment is one day late, the loan becomes delinquent. After 90 days of delinquency, your servicer will report the missing payment to credit bureaus, which could hurt your credit score. Once it’s 270 days late, the loan will default.
When your student loan defaults, your servicer will send your debt to a collections agency and bill you a fee, explains Kristen Ahlenius, director of education at Your Money Line, a workplace financial wellness company. The agency could withhold your tax refund and Social Security benefits, garnish wages and more. And your entire remaining loan balance and unpaid interest becomes due immediately upon default.
“Deciding to not pay, or participating in a debt strike, doesn’t come without consequences,” Ahlenius explains. “Unfortunately, it likely comes with long-term damage to your credit, as well.
Alternatives to a student loan strike
There are other ways to manage your student loans, and taking a short cut now could haunt you in the future.
“Carefully consider the consequences not only today but 10 or 15 years from now — which can be severe — but also realize you have access to a great deal of programs and tools that can reduce any potential burdens,” says Scott Buchanan, executive director of the Student Loan Servicing Alliance.
Some of those alternatives include:
- Public Service Loan Forgiveness. PSLF is a loan forgiveness program for public service workers who are employed by a qualifying organization for at least 10 years and make 120 qualifying monthly payments.
- Income-driven repayment plans. IDR plans base your payments on a percentage of your discretionary income. Remaining debt is canceled at the end of either 20 or 25 years. With the new SAVE repayment plan, you could see significant reductions in your monthly payments without the threat of a ballooning balance due to unpaid interest accrual. Single individuals who earn around $32,800 or less can qualify for $0 payments.
- Consolidation. Another way to manage your debt is to consolidate it into a Direct Consolidation Loan. It will combine your loans into one and allow you to access more repayment plans and forgiveness programs, like IDR. Borrowers with commercially held Federal Family Education Loans (FFELP) or Perkins Loans must consolidate to get access to those benefits. However, consolidation will increase your loan term and will likely increase the amount you pay in total.
- Deferment and forbearance. If you have serious medical issues or are dealing with financial hardships, you may be eligible for a federal student loan deferment to postpone your payments. Borrowers with subsidized loans don’t have to worry about interest charges during a deferment; the government covers it. Other borrowers will see their interest grow during forbearance and should consider other options. Contact your loan servicer and discuss your eligibility and implications.
Fight for forgiveness
If you want to advocate for student loan cancellation or forgiveness, there are other ways you can take action beyond participating in a payment strike.
“Just like other direct actions and civil disobedience, the risks do not fall equally on everyone. If you are not able to get to $0 monthly payments safely, it is okay to do what you have to do to protect yourself,” the Debt Collective writes. “There are other ways to organize and build pressure to win student debt cancellation.”
One way to do that: Write letters to or call your members of Congress to encourage them to support initiatives that help student loan borrowers, like broad debt cancellation. You can find the contact information for your senators and representatives through the following databases: