The 1 Thing You Must Do If You’re Late with Your Student Loan Payment

Student loan name badge on jacket.

Debt doesn’t have to define you. | mj0007/iStock/Getty Images

Falling behind on your student loan payments is a horrible feeling. Whether you lost track of time or don’t have enough money, missing a payment is a serious problem that can affect your credit score and even your paycheck.

If you’ve fallen behind on your payments, you’re not alone. According to the Institute for College Access & Success, 8.5 million federal loan borrowers with over $140 billion in outstanding student loan debt were in default as of June 30, 2017. That number doesn’t even include default rates on private student loans, which many students use to pay for school.

If you’re struggling to keep up with your bills, here’s what you need to know about the consequences of missed payments — and how you can get back on track.

FirstThe most important thing you must do if you miss a student loan payment

6 ways to handle a late student loan payment

Whether it’s been a week or a year since your last payment, here’s how you can handle student loan delinquency or default.

1. Contact your loan servicer

Don’t wait for additional fees to accrue. | zimmytws/iStock/Getty Images

If you missed the payment deadline by a few days, contact your loan servicer immediately. Call the customer service department and explain your situation.

If you’re able to pay what you owe right away, you might be able to avoid additional fees. The loan servicer might not notify the credit reporting agencies about the late payment if you reach out as soon as you realize the deadline passed.

Next: You may be able to delay your payments 

2. Ask about deferment or forbearance options

students on the columbia university campus

Some lenders let you hold payments in certain circumstances. | Mario Tama/Getty Images

If you have federal student loans and are facing a financial hardship that caused you to miss a few payments, you might be eligible for deferment or forbearance. With this approach, you can postpone making payments on your loans — for as long as 12 months in some cases — without going into default or owing late fees.

Some private student loan lenders offer forbearance options, but not all of them do. Contact your lender and ask if it offers forbearance in the event of unemployment, medical problems, or other extenuating circumstances.

Next: Consider alternative payment plans 

3. See if you qualify for alternative payment plans

Student loan repayments on a form

You might have access to an income-driven repayment plan. | ShaunWilkinson/iStock/Getty Images

Federal loans have unique benefits, including access to income-driven repayment (IDR) plans. If you can’t afford your loan payments and have fallen behind, talk to your loan servicer about applying for an IDR plan.

Under an IDR plan, the government caps your payment at a percentage of your income and extends your repayment term. Some borrowers can qualify for payments as low as $0.

Although private loans aren’t eligible for IDR plans, some lenders offer alternative payment plans. For example, you might be able to make interest-only payments or reduced payments until you get back on your feet. Each lender has its own policies, so contact your lender directly to learn about your options.

Next: What to do if you’re already months behind on your debt 

4. Research loan rehabilitation

You can make payments based on income. | iStock/Getty Images

One option for federal borrowers who are months behind on their debt but can’t afford large payments is loan rehabilitation. You must agree in writing to make nine monthly payments within 20 days of the due date during a 10-month period.

As part of the agreement, your loan servicer will assign you a new monthly payment that is equal to 15% of your discretionary income. In some cases, you could qualify for a payment as low as $5 per month. Once you make those nine payments, your loans will no longer be in default.

If the payment your servicer decides on is too expensive because of your personal circumstances, such as needing to spend more on child care, you can show proof of your income and expenses and ask your servicer to reduce your payment amount.

Next: Do everything you can to avoid default 

5. Pay the amount due in full as soon as possible

Money check and pen

Pay in full as soon as you can. | Timurpix/iStock/Getty Images

Even if you’re behind on your payments by nine months or more, you can get your loans out of default by paying the full balance of the loan at once. When you’re barely making ends meet and already behind on payments, that might sound impossible, but there are ways it can be done.

Because student loan default can have such a severe impact on your credit and finances, it might be worth raiding your nest egg or asking a relative or loved one for a loan. It’s less than ideal and isn’t an option for everyone, but it could help you recover faster than struggling on your own.

Next: Refinancing may be an option 

6. Consider a refinancing loan

Business colleagues working together

Find a lender who can help you. | iStock/Getty Images

One way to get out of default if you’re months behind is to refinance your debt. Student loan refinancing allows you to work with a private lender to take out a new loan for the amount of some or all of your loans. This loan has different repayment terms, including a new interest rate, length of repayment, and monthly bill. Because you use the refinancing loan to pay off your old loans, you’ll no longer be in default once your refinance.

Finding a lender to work with you when you have a loan in default on your credit report can be difficult, but it isn’t impossible. Depending on your overall credit history and income, you might be able to get approved. Or if you have a friend or relative with excellent credit who is willing to cosign the loan, you could get approved that way.

Next: The consequences of missing a student loan payment 

What happens when you miss a payment

Finding a solution when you missed a payment is essential because falling behind has serious consequences.

1. Damaged credit

hand checking poor option for credit score

You may tank your score. | iStock/Getty Images

Your credit score plays a big role in your life. It’s what banks and even landlords look at when they consider your application for a new loan, credit card, or apartment. If your credit is poor, you might have to pay higher fees and interest rates, or you might not be able to get approved at all.

Your FICO credit score is based on several factors. However, the most important factor is on-time payments; your payment history counts for 35% of your credit score. Even just one missed payment can hurt your credit.

Next: Late fees only make the situation worse. 

2. Late fees

You’ll end up spending more. | iStock/Getty Images

Your loan servicer can charge you a late fee if you fall behind on your payments, and it can be significant. Some loan servicers begin charging a late fee just two weeks after your due date, and the fee can be as high as 5% of your payment.

For example, if your monthly payment is $500 but you missed this month’s deadline, you’d have to pay an extra $25 in fees to bring your account back to good standing. When you’re already on a tight budget, those late charges can add up.

Next: Say goodbye to your tax refund 

3. Wage and tax refund garnishment

Businessman Hands Giving Cheque To Other Person In Office

Your paychecks will shrink. | AndreyPopov/iStock/Getty Images

If you have federal student loans, they go into default after nine months of missed payments. Private loans work differently. The timeline for default on the loan can vary from lender to lender; with some, you’re in default after just one missed payment.

One of the main consequences of default is wage garnishment. When your loans are in default, your servicer can require your employer to withhold a portion of your paycheck as payment toward your debt. If you’re eligible for a refund when you file your tax refund, the government can withhold it.

Next: Dealing with debt collectors 

4. Account collection

calculate bills

It’s possible to get out of debt. | Wutwhanfoto/iStock/Getty Images

If you don’t make payments, your lender can send your debt to collections. You’ll receive calls from collection agencies, and extra fees can be added to your account. Depending on your lender, you could end up owing up to 25% of your loan and interest on top of your outstanding balance.

Moving forward

If you missed a payment, don’t beat yourself up. It’s easy to make a mistake. Contact your loan servicer right away to come up with a repayment plan that works for you and your budget. The sooner you recognize the problem and take steps to fix it, the sooner you’ll be on better financial footing.

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