What happens if I miss a student loan payment?

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We understand – money is tight right now. But if you’re thinking about skipping a student loan repayment in order to save some room in your budget, beware of the consequences.

In normal, non-pandemic life, borrowers are “expected” to make payments on time, says Nicole Stovall, head of consumer loans at Affinity Federal Credit Union. Because payment history has such a big influence on your credit score, missing a bill can have pretty serious consequences.

“Your lender will report you to the credit bureaus,” Stovall adds. “You’re going to see a drastic reduction in your credit score for just one missed payment. “

When you actually see this impact will vary depending on the type of student loan you have. Federal loans become offender the first day after missing a payment. The service agent will report it to the credit bureaus after 90 days, and later he could be in default. Private loan policies are often more stringent. They depend on the company you are dealing with and may incur late fees.

Some lenders will offer a deferment or forbearance if you contact them and show financial difficulty. These options allow you to temporarily defer student loan payments.

“The idea of ​​jumping is never a good idea,” says Stacey MacPhetres, college finance consultant Luminous horizons. “But there are ways to do it that won’t hurt you in the long run. “

Fortunately, the situation is different in 2020.

Thanks to the pandemic, massive layoffs and the generally deplorable state of the economy, the government suspended some student loans this spring. Student loans held by the federal government were automatically placed on administrative forbearance, meaning borrowers were not required to make payments on them for a set period of time. Interest rates were also set at 0%, meaning people weren’t penalized for taking advantage of the break.

President Donald Trump recently extended this policy until the end of the year, so “you don’t have to make payments right now,” MacPhetres said.

Even if they don’t have at, she recommended that people who can afford to continue making their regular student loan payments do so. Since interest does not accrue, the loan amount does not increase. The payments will go directly to reducing the principal, which will pay off the loan faster. Attractive.

If life is stressful, you can keep your payments and increase your emergency fund. You’ll have a good safety net, and if all goes well, you can always cut your loans significantly right before Trump takes over.

Remember: this only applies to federal student loans. Private loans are another story. Stovall said many lenders are offering customers forbearance options during the pandemic, although interest will likely accrue.

“I don’t really know anyone who said, ‘No, you have to make your payment,’ she adds. “All the financial institutions said, ‘What do you need? How can we help you?'”

At the end of the line ? Skipping a student loan payment can ruin your credit. It’s less harmful during the pandemic due to special policies designed to relieve pressure on borrowers, but the details depend on whether your loan is federal or private.

One piece of advice always applies: you should never ignore your lenders. Coronavirus or not, if you are in a difficult situation you should contact them and tell them that you are struggling.

“Most of the time, if you contact your lenders, they’ll work with you,” says MacPhetres.

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