Missed a student loan payment? Here’s what could happen – Forbes Advisor
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Federal and private student loans offer more options for skipping payments when you are in financial difficulty than most other types of loans. However, you can still face penalties, such as a damaged credit score, if you don’t let your service agent know you’re having trouble paying your bill before a student loan payment comes in. produce.
Here’s what happens when you miss or make a late student loan payment, plus how to avoid penalties.
What happens if your federal student loan payment is late
1 to 89 days
If you’re a day or two late, nothing will happen. Catch up on your late payments, get an approved payment interruption, or choose a new repayment plan before your agent reports your late payment to the credit bureaus.
Technically, the government could charge late fees, but this has not been the case since the launch of the direct lending program. In addition, every payment on an income-based repayment plan counts toward student loan cancellation, even if the payment is $ 0. That’s why it’s always a good idea to discuss financial issues with your agents to consider your options.
At 90 days, your agent will likely report your late payment to the credit bureaus and your credit score will drop. Reporting of late payments continues on a monthly basis after you have missed payments for 90 days.
At this point, you will enter the student loan default for non-payment. Your entire unpaid loan balance becomes due – this is called acceleration – and you will lose federal loan benefits like deferral, forbearance, and the ability to apply for a repayment plan based on Income. You will also become ineligible for federal assistance and your agent may require a garnishment of your payday in order to repay your loans.
Your loan could also be referred to a collection agency, and fees 17.92% of your balance could be added to your loan if it is held by the US Department of Education. If your balance was $ 60,000, adding 17.92% to the cost of your loan makes the total balance owed greater than $ 70,700 to offset collection costs.
Your interest rate does not change. You can dispute the default if it was a mistake, for example if your school was supposed to report your student status to your federal student loans department. If the default is correct, you may be able to rehabilitate your loan.
What happens if your private student loan payment is late
Private student loans have their own rules regarding credit reports, late fees, and the consequences of late payments. The rules may differ from one lender to another.
Here’s what you need to know about when private student lenders will charge late fees, report late payments to the credit bureaus, and take legal action for non-payment.
You’ll be considered a delinquent when you’re one day behind on a private student loan, says Madison Block, spokesperson for American Consumer Credit Counseling. Late fees are unlikely to be charged. Lenders may tell you that you have a grace period of a few days before a payment is considered late.
30 to 45 days
At this point, you might start to rack up late fees, Block says. The total amount and when these fees are assessed vary depending on the lender.
After 90 days, your lender will report your late payments to the credit bureaus and your credit score “can take a huge hit,” Block says. This is especially true the higher your credit score or shorter your credit history, the former because a missed payment is a big red flag if you otherwise have strong credit, the latter because bureaus have less. information about you to understand your payment method. behviour.
Unlike federal loans, which default after nine missed payments, your private loans could be considered in default after only three missed payments, according to the Consumer Financial Protection Bureau. When default occurs, however, it is entirely up to the lender.
The lender can sue the borrower to collect the funds or send the debt to a collection agency. If the private student lender wins a lawsuit, you could end up with your wages garnished at your job.
How to Avoid Missing Student Loan Payments
There are many reasons you might miss a student loan payment, some of which have nothing to do with not being able to pay back. Here are three scenarios and what you need to do in each.
1. You forgot the existence of the loan
What you should do: Find all of your student loans, both federal and private. Your federal student loans are listed on studentaid.gov and all of your private student loans are listed on your credit reports through AnnualCreditReport.com. If you see a loan that you don’t recognize, contact the Department of Education or the lender directly.
2. You lose track of payment dates
What you should do: Choose automatic deductions on payment. If you forget to make payments, the best way to avoid missing payments in the future is to sign up for automatic withdrawals from your bank account. Federal student loans offer an incentive of one 0.25% interest rate reduction for registration.
Private student loan lenders may also offer an incentive. If you are changing bank accounts, be sure to give yourself an overlap month to ensure your student loan pre-authorized debit is processed to the new account before closing the old one.
The other option is to call your service agent or lender and ask them to change the payment date to a date that is easier to remember.
3.You can’t afford your payments
If you can’t afford to make your payments, here are three steps you can take:
- Call your loan officers immediately. Federal and private student loans offer deferral and forbearance options during times of economic hardship. Federal loan managers have mandated it, but private student loans often offer payment breaks at their discretion. Ask your loan officers and lenders to take a break from payments or switch to a different payment plan.
- Put federal student loans on hold or reduce payments to pay off private loans. Since federal student loans provide more options for payment interruptions, it may be best to use these payment interruptions while you are catching up on private student loan payments.
- Reassess your budget. If you’re having a financial problem with your student loan repayment and it’s not a temporary problem, you should take a close look at your budget. Look for painless budget cuts first. For example, negotiate your phone, cable, or insurance bills.
Missing or being late on a student loan payment usually has no consequences for at least 30 days. However, you should look for solutions to the missing payments as early as possible. Which solution is best for you depends on why you are missing payments and ranges from squeezing budgets to choosing a new repayment plan.
Whatever you do, be sure to contact your lender if you can’t make a payment. The consequences can be serious, such as a drop in your credit rating or a garnishment of your salary.