How to Overcome Delinquent Payments on Student Loans

Around 1 out of every 10 student loan borrowers in the United States is at least 90 days delinquent on their loans. Student loan debt is the second-highest consumer debt in America, reaching around $1.4 trillion dollars as of last year.

The day after you miss a payment on your student loan, the loan is considered delinquent. Usually, you have until the next payment due date to correct the delinquency before your loan provider or servicer will start contacting you to collect. 

If you miss multiple payments in a row and your loan becomes 90 days delinquent, your loan servicers will likely report your delinquency to the three main credit bureaus and your credit report could be negatively impacted. 

As soon as you start to struggle to make your student loan payments, you should contact your loan servicer to discuss your options.

The Impact of Delinquent Payments

The first day after you miss a student loan payment, your account becomes delinquent, and late fees are typically assessed. Depending on your lender, the fees can vary, but they are usually around 5%. 

Your account will remain delinquent until you pay back all your past due amounts. You usually have 30 days after the due date to reconcile your payments.

If you miss three payments in a row and are 90 days delinquent, your loan servicer will report you to the credit bureaus, which will lower your credit score. This can make it harder to get a credit card, buy a car or house, rent a residence, get a cellphone plan, or even get a job, in some cases.

Delinquency and Default

After 270 days, or nine months, your student loan will likely default. When you go into default, your wages can be garnished, your tax return can be taken, and your Social Security benefits can be withheld to pay off the debt. 

Student loan default affects your credit score and alerts collection agencies. Your delinquent account is put into collections once it defaults, which can be difficult to reverse. 

Student loan default can cause the following:

• Collection fees that can range between 18% and 40%
• Ineligibility for federal financial aid
• Wage garnishment and withholding of tax refunds
• Removal of loan options and benefits, such as subsidization and deferment

The default remains on your credit score for seven years, which can increase interest rates on future loans or credit cards, or make it hard to obtain them.

Getting Back on Track

If you are struggling to cover the cost of your loans or are facing hardship, there are some steps you can take. Contact your loan servicer as soon as you start struggling to make payments. They can work with you and let you know your options to make payments more manageable.

Here are some of your options:

• Flexible repayment plans: There are several different forms of repayment plans. Depending on your type of loan, you can be eligible for flexible plans that can lower your monthly payments and make them more manageable. Income-based repayment (IBR) plans use your discretionary income to determine your monthly payments.
  
• Refinancing: Student loan interest rates can vary, and you can often lower your monthly payment by finding a loan with a lower interest rate than you are currently paying. This can cause you to lose some of the benefits of your current loan, so be sure to discuss your options with your loan servicer before committing.
  
• Deferment: There are many circumstances that can make you eligible to defer your loan, which means putting off payments and potentially extending your grace period. Half-time student enrollment, active-duty military service, medical circumstances, and hardships can make you eligible for a deferment.
  
  If you have a subsidized loan, interest does not accrue during your deferment. If your loan is unsubsidized, interest will accrue during that time.
  
• Forbearance: This is another short-term solution that temporarily stops your monthly payments on federal student loans due to specific circumstances. You will need to apply for forbearance with your loan servicer, and interest will accrue during that time. 

Once your loan has become delinquent, it can lower your credit score. One way to build credit back up is to consistently make on-time payments going forward. It can take time to build your credit back up, but the more payments you make, the faster you can increase your credit score.

Getting Out of Collections and Default

If you make payments to get caught up before the 270-day mark when your loan goes into default, this can keep the collection agencies at bay and remove the delinquency and default from your account. Once you are in default, however, you have three main options:

1. Rehabilitation: If you have a federal student loan in default, you can apply for a student loan rehabilitation that can get you out of default. This will require you to make nine on-time payments in a row over a period of 10 months.
   
   Monthly payments are determined by you and your loan servicer. They are often 15% of your discretionary income but can be as low as $5.
   
   If this is still a hardship, the loan servicer can work with you to make your payments reasonable and manageable. Even if you are able to rehabilitate your loan and remove the default from your credit score, the late payments and delinquency will remain.
   
2. Student loan consolidation: If you have federal student loans, you can apply for a direct consolidation loan, which combines all your loans into one to make monthly payments more standard. This can end up increasing your monthly payments, however, as well as potentially raising the amount of money you will pay overall.
   
   Private loan refinancing may be able to lower your monthly payments, but it can result in the loss of federal loan benefits.
   
3. Bankruptcy: Filing for Chapter 7 or Chapter 13 bankruptcy may not always be able to discharge student loans, but if you can prove that making your loan payments presents an undue hardship for you and your family, it may be granted.

If you can, come up with a plan for paying back your student loans before they become delinquent (before you miss a payment). Most student loans have a grace period after you graduate from school, leave school, or drop down to less than half-time enrollment status. 
The grace period is usually about six months. You can use this time to create a budget and decide how to cover your monthly student loan payments.

If you recognize that it will be a hardship to make ends meet, talk to your loan servicer. They can help you come up with a plan to keep your payments manageable. Student loan servicers are often flexible and willing to work with you to resolve your debt and protect your credit score.