How to Handle a Late Student Loan Payment
The timeline of how a missed student loan payment works will vary from lender to lender.
If you’re dealing with a private student loan, the terms of your loan may spell out exactly how late payments are handled. Government-backed loans may as well, but check with your loan servicer to be certain.
Either way, as soon as you have missed a payment, your student loan status changes from current to “delinquent.” You will not be changed back to “current” until you take action. This means making that payment or requesting a deferment or forbearance on your student loan.
According to a report by Credit.com, roughly 7 percent of federal student loans are currently delinquent. In fact, 70 percent of those late student loans are 90 or more days past due.
If you are among that 7 percent who have missed a payment, you must act fast; there are major consequences that happen when you do not pay on time. They include:
Late fees from a missed payment
During the first month of a missed payment, you may be charged a late fee penalty. When this occurs and how much of a hit you’ll take depends on the loan servicer.
For example, a $400 student loan payment may be charged a 5 percent late fee after 30 days, which means you could owe up to $20 extra. And late fees continue to add up as long as your account is delinquent.
Late student loan payment and your credit score
At the one month mark of missing a student loan payment, your servicer may now start to report your student loan as delinquent to the major credit bureaus.
Federal student loans report to all three after 90 days while other servicers might report to only one after 45 days. For every 30 days your payment is late, your delinquency will continue to be reported — which only makes the situation worsen as time goes by.
A late student loan payment reported on your record will reduce your credit score and may affect your ability to take out new credit (such as get a new credit card or car loan). If you have credit card debt, you may also see your interest rates rise.
In other words, that one missed student loan can now affect the rest of your debts.
After 270 days of missing a student loan payment, your loan goes from “delinquent” to “default.” Defaulting on a student loan is a huge deal.
Unlike delinquency, which still leaves you with a few options, defaulting means that your student loans are due in full and with any accrued interest or fines and penalties (such as fees charged by collection agencies).
Additionally, the government can begin garnishing your wages by up to 15 percent or even take your tax return in order to cover the costs of your missed student loan payment. And, believe it or not, your servicer could actually sue you.
Delinquency and default can be incredibly damaging for a cosigner as well. Once you are delinquent on a cosigned student loan, your cosigner’s credit will be severely impacted and collections may come after them or their property to recoup the loss.
Steps to take if you miss a student loan payment
No matter how late you are, your first step must be to reach out. Call your student loan servicer and admit to your mistake. It can be scary to make the first move, but taking responsibility for your inaction can actually help you redeem yourself.
If you have a late student loan payment because of a financial hardship (such as a medical emergency or job loss) your servicer may actually be able to help. They can assist you in applying for deferment or forbearance, which can postpone or reduce your payments based on your situation.
If neither program is right for you, or you just want to get your student loan payment back to current, your service representative can walk you through the steps (including the fees) you will need to make.
Avoiding a late student loan payment in the future
Late student loan payments happen. Whether it’s because you were unable to pay this month or you simply forgot, it’s time to set up strategies that can help you avoid all the hassle in the future.
Your best course of action is to set up automatic student loan payments. Lenders love when you sign up for automatic payments — so much that they may offer a reduction of your monthly interest rate for signing up.
And if your credit took a hit because of a late payment, having a consistent and automatic payment can help your score bounce back more quickly.
If automatic student loan payments aren’t an option, consider changing the due date of your student loan to a date that lines up with your paycheck. Many student loan providers will give you this option.
Another strategy is to simply organize your finances in a way that will help you better remember due dates. If you are not great at keeping track of paper mail, sign up for estatements or email notifications of your loan’s due dates. If you rely on your phone to keep your dates straight, set up calendar alerts (or even an alarm) that will consistently remind you that your payment is due.