Student loans are a reality for many of us, and keeping up with payments can be tough. So what happens if you miss one? It’s a question worth exploring because missing a payment can have serious consequences. In this article, we’ll break down what happens when you miss a student loan payment in plain and simple terms. Understanding these consequences is key to staying on top of your finances and avoiding unnecessary stress.
Consequences of Late Federal Student Loan Payments
If you miss a student loan payment, your loan status will typically change from “current” to “delinquent,” triggering potential late fees. It will remain delinquent until you make that payment or apply for deferment or forbearance.
What Happens if You Miss a Federal Student Loan Payment?
Federal loans generally have lower interest rates and more flexible repayment options. They also offer a grace period (some 6 months, sometimes 9 months) before defaulting on the loan.
Missing a federal student loan payment can lead to various consequences, including:
- late fees
- a negative impact on your credit score
- potential loss of benefits like enrollment in income-driven repayment plans or loan forgiveness programs
- and the risk of collections and legal action if the situation escalates to default.
Additionally, defaulting on federal student loans can render you ineligible for future financial aid and negatively affect any co-signers on the loan. It’s crucial to communicate with your loan servicer if you’re struggling to make payments, as they may offer alternative repayment options or assistance to help you avoid default and mitigate the repercussions of missed payments.
What Happens if You Miss a Private Student Loan Payment?
Private student loans may have higher interest rates and less forgiving repayment terms. The consequences for missing payments on private loans depend on the lender’s policies, which may include late fees and limited forgiveness programs.
It’s essential to understand the terms of your specific loan and communicate with your lender if you’re facing financial difficulties. Missing a private student loan payment can lead to:
- late fees
- a negative impact on your credit score
- potential loss of benefits (such as interest rate reductions or cosigner release programs, and the risk of collections and legal action by the lender).
- and the risk of collections and legal action if the situation escalates to default.
Additionally, missed payments can affect any cosigners on the loan and may ultimately lead to default if not addressed promptly.
How Do Missed Student Loan Payments Affect Credit?
If you do not take any action on your late payment, your delinquency will be reported to three major credit bureaus—Equifax, Experian, and TransUnion. Missing payments can quickly cause problems, potentially turning into long term repercussions. *In September of 2023, the Biden administration announced that late or non-payments for federal student loans won’t be reported to credit bureaus for 12 months. This “on-ramp” is scheduled to last until September 30, 2024.
90 Days
After 90 days, your servicer will report your payment, resulting in a mark on your credit report. This can make it more difficult for you to take out a new line of credit and get approved for loans in the future. If you do get approved, be aware that it may be at a much higher interest rate.
270 Days
If you continue to do nothing about your late payment for 270 days, the loan goes into default. In addition to damaging your credit even more and incurring a higher penalty, you could also face legal action when your loan goes into default. The lender may take action to get their payment through wage garnishment or by withholding your tax refunds.
How To Recover After That First Missed Payment
If this is your first missed payment, take a deep breath and don’t panic. There are steps you can take to help the situation. Most lenders understand that college students are juggling multiple personal, professional, and financial obligations.
As soon as you realize you’ve missed a payment, you should call your lender to explain the situation. They can help walk you through the proper steps to take so you can make that payment promptly. This simple action can save you from damaging your credit score and jeopardizing your financial future.
What You Can Do To Avoid Late Payments
Fortunately, there are ways to help you avoid missing a student loan payment. The first thing you need to do to stay on top of your student loans is to learn everything about your specific loan, from the rate of interest to the payment dates to the penalty for late payment.
To save yourself time and money, set up payments through autopay. Autopay instructs your bank to automatically transfer the amount from your account to the lender’s account on a particular date. This ensures that your payments get made on time every month and there is no risk in forgetting. An added benefit of choosing automatic bill payments is that some lenders will reward you by reducing your interest rate. It may be a small reduction but that amount will add up substantially over the term of your loan and is well worth it.
If you are uncomfortable with the thought of automated payments, consider setting a digital reminder a few days before your payment is due or set aside a specific time each month to make your payment.
What if You Can No Longer Afford Your Student Loan?
If you find that you can no longer afford to make your student loan payments, be proactive rather than ignoring the situation.
- Ask your lender for solutions or alternative repayment plans
- Adjust your monthly payments based on your income
- Consider deferment or forbearance, allowing you to temporarily stop or reduce your payments
- Consider consolidating your federal loans if you have more than one
- Consider refinancing your private or federal student loans
- Seek financial assistance
- Create a budget and track your monthly expenses, ensuring your student loan payment is a priority expense
Use College Raptor’s Student Loan Finder to compare interest rates and lenders to find the best loan option for you!
