What Is Student Loan Delinquency?

Digital alarm clock showing "late".

Flickr user Evan

College education can open up a world of opportunities. However, it also oftentimes comes with a price—namely student loan debt. It can be confusing to keep a track of the repayment rules and terms. To add to the problem, you will have to make sure that you don’t miss a single payment. This is easier said than done, especially if you are already finding it difficult to make the payments.

So, if you have missed a payment or close to missing one, it is important you understand how student loan delinquency can affect you and what you can do prevent being labeled a student loan delinquent.

Understanding Student Loan Delinquency

When you take a student loan, you are legally obligated to repay the amount based on certain repayment criteria. If you miss making a single payment on your student loan, you are in delinquency. In fact, even if you are a single day late, the lender will place you on the delinquency list.

Delinquency is slightly different from default. You are in delinquency when you do not pay your student loan for 270 days. However, if you exceed this time-frame and don’t make a single payment, you are considered a student loan defaulter.

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Effects of Student Loan Delinquency

If you are in delinquency and over 15 days late, the student loan provider will send you a reminder to make the payment immediately. Remember, while being a loan delinquent will not affect your financial situation adversely, it will surely affect your credit score.

The moment you are in delinquency, you risk losing the benefits on your student loan. This could mean losing the discounted interest rate. This could have a huge impact on the monthly repayment amounts as well as on your financial situation.

If you continue being in delinquency, you will be categorized as a loan defaulter and this will bring down your credit score dramatically. Hence, prospective financial institutions will not view your other loan applications favorably and you will either be denied new loans or end up with a high interest rate.

Being in student loan delinquency is not something you should take lightly. It could affect your future. First, it is tough to repair bad or poor credit and then you also risk legal action by the loan provider. This could result in your loan provider getting access to your wages. You could also end up not getting your tax refunds until you repay the loan amount. Remember, the moment you become a student loan defaulter, the pending loan amount has to be repaid in full.

The Way Forward

Circumstances can result in you becoming a student loan delinquent. It does not have to the end of the world. Yes, you will have to pay late fees and money to make up for the days you were in delinquency, so make the payment as soon as possible. Also, if you have federal student loans, the loan servicer may not report you to the credit bureaus. So, it is best to set the record straight before that happens. However, if you have private student loans and are already 60 days late, you will not be that lucky.

If you are strapped for cash, make the minimum payment or speak to your loan provider or servicer to see if you are eligible for deferment or forbearance. Take stock of how you spend your money and come up with a stringent budget so that you can make the payments on time.

Student Loan Default Vs. Student Loan Delinquency

When you are behind on your student loan payments, it is considered a delinquency. It does not take long for a loan delinquency to occur. If you miss a due date payment, the very next day the loan is considered to be delinquent.

The loan goes into default if you are delinquent for a certain amount of time. The exact period of time may differ depending on the lender and the loan terms but for federal loans, a loan is said to be in default if the payment is not made for a period of nine months.

Consequences Of Student Loan Default Vs. Student Loan Delinquency

The exact consequences for loan delinquency would depend on the type of loan as well as the cause and duration of delinquency. For example, if a few days have passed since your payment deadline and you still cannot make the payment, your loan will remain in delinquent status until you pay it up or you chose deferment or forbearance. As soon as you pay up, the delinquency is canceled.

Defaulting on a loan however, can have much more serious consequences. If you do not make the payment on your delinquent loan for about 9 months or 270 days, your loan is officially placed in default status. If this happens, it could adversely affect your credit ratings, making it difficult in the future to obtain a mortgage, get approval to rent an apartment or purchase homeowner’s insurance.


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