There are many reasons why you may miss one a student loan repayment. Maybe you didn’t get the high-paying job you were hoping for and are struggling financially. Maybe you had some unexpected medical or vehicle repair bills to pay. Or maybe you just forgot the due date.
Regardless of the reason, late student loan repayments can have harsh consequences. The impact of the late payment will depend largely on how late the payment is. As the late payment becomes more overdue, the ramifications start to stack up.
Most borrowers know about late fees and interest charges but that’s not the only price you’ll pay. Missing student loan repayments can affect you in several different ways.
These are some of the dangers of not making on-time student loan repayments
A payment is considered late even if it is just one day past the due date. Both federal and private student loans enter delinquent status if the payment is one day overdue.
Private lenders will charge you late fees and interest on the outstanding amount starting from day one itself.
Federal loan lenders will charge you late fees and interest starting 30 days past the due date.
The late fees and interest are calculated on a daily basis. Clearing this outstanding as soon as you can help reduce the total. The longer you ignore it, the more fines and interest it will incur, making it even more difficult to pay off.
Remember, each loan is considered separately. If you miss payments on multiple loans, you’ll pay a fine and interest on each outstanding payment.
You’ll almost certainly be charged late fees as well. The amount you owe will be determined by your lender’s policies as well as the conditions you agreed to. Late fees, on the other hand, are frequently a percentage of the missed payment amount.
If you miss a student loan payment, your servicer may report the default to the three main credit bureaus.
Although a loan is considered delinquent one day past due, lenders don’t report delinquency to the credit bureaus immediately. Once they do this, the delinquency is entered into your credit report. Any delinquency on your credit report will lower your credit score by a few points.
Private lenders will report the delinquency to all three credit bureaus between 30 to 45 days past due.
Federal loan lenders give you additional time. They will report the delinquency to the credit bureaus when it is 90 days past due.
A single late payment can drop your score down by a few points. Late payments on multiple loans drop your score by more than 100 points. Late payments stay on your credit report for 7 years. The damaged credit score can make it difficult to secure a credit card or another loan in the future. It can also make it difficult to get a new job, an apartment or a new cell phone plan.
If you make the payments before the reporting timeline, the lender will remove the delinquency status from your account. This will put your loan in good standing again and your credit score won’t be affected.
Late payments damage the borrower’s and the cosigner’s credit scores. If you’ve applied for the loan with a cosigner, their credit score will drop too.
The consequences are even more serious if your loan moves into default. The timeline and impact are different for federal and private loans.
Private loans move into default if the payment is 120 days past due. When this happens, the lender may send the loan to collections. Or they may file a lawsuit against you to recover the cost. The default is also reported to the credit bureaus. All of these can damage your credit severely, making it difficult to get any loans in the future.
Federal loans move into default after 270 days past due. If your federal student loan goes into default, you’ll lose eligibility for deferment and forbearance benefits. The default status will also be reported to the credit bureaus. Worst of all, your entire loan balance will become due immediately. This will only worsen any financial stress you’re already dealing with. If you cannot afford the payment, the federal government can garnish your wages or withhold your tax refund.
The consequences of missed loan repayments can push you further into debt. Here are some things you can do to avoid getting caught in this disastrous debt cycle.
Autopay involves transferring the loan amount directly from your savings account to the lender on or before the due date. This eliminates any payment delays because of forgotten due dates. As an added bonus, most lenders also offer rate discounts on autopay repayments so you’ll save money too.
This is only applicable to federal student loans. Income-based repayments base your monthly repayments on your income so they always fit into your budget. This eliminates the risk of missing payments because of unaffordability.
Refinancing with an extended repayment term spreads the outstanding amount over a longer period. This will lower your monthly payments and make them more affordable. You will pay more in interest over the long term but you will avoid the more imminent risk of delinquency and default. You can always refinance again to a shorter-term when your finances improve. Another thing to remember – you’ll lose federal protections and benefits if you refinance federal student loans.
Call your lender immediately. Let them know if you’ll be able to clear the payment in the next few days. If the payment is going to be late by more than 30 days request an extension. The lender is under no obligation to do this but it doesn’t hurt to ask. If you have a compelling reason why your payment is late, they may work with you to find a solution.
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