Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
We all know that paying our bills on time is important. But sometimes life gets in the way. It may be an unexpected medical crisis, a job loss, or the expense of moving into a new apartment that leaves you without enough left over to make every payment on time.
You may be wondering, “What happens if I miss a loan payment?” Continuing to not pay your loan will have consequences — some of which may include student loan default and potentially negative impacts on your credit score. But there are options to help struggling borrowers get back on track.
What Happens if You Miss a Student Loan Payment?
Before we dive in, it’s important for you to know that this is an incredibly complex topic. We’re going to try to break it down the best we can, but please understand that this info is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice. SoFi always recommends that you speak to a professional about your unique situation.
Here’s a breakdown of what happens if you miss a student loan payment and some paths forward:
What Happens if I Miss a Federal Student Loan Payment?
Starting from the day after you miss a payment, your loan is considered delinquent. Even if you start making the next payments, your account will remain delinquent until you make up for the missed payment or receive deferment or forbearance.
Once 90 days pass, your loan servicer will let the major credit reporting agencies know that your loan is delinquent. Your credit score will take a hit, making it more difficult to qualify for good terms on loans or credit cards or to rent an apartment.
If you continue not paying, your loan will go into default. For federal loans, the government will wait 270 days. Defaulting on your student loan has serious consequences. The entire amount you owe on your loan, including interest, becomes due immediately.
You won’t be able to take out any other student loans, and you’ll no longer qualify for deferment or forbearance or be able to choose your own mortgage, car loan, or other forms of credit. The government may take your tax refund or federal benefits to pay off your loan. You may also have your wages garnished, meaning your employer will take part of your paycheck and send it to the government to be applied toward the loan.
It’s rare, but the government can also sue you at any time — there’s no statute of limitations. You may also be responsible for collection fees, attorney’s fees, and other costs. In other words, you do not want to default on your student loans. (If you do, options exist for getting out of default.)
What Happens if I Miss a Private Student Loan Payment?
Private lenders usually give you much less leeway than the federal government. Exactly what happens if you miss a payment depends on the company’s policies and your loan terms. A private lender can tack on late fees and transfer your loan to a debt collection agency.
Also, private lenders can sue you if you stop paying your student loans. If they win, a court can sign a judgment allowing them to garnish your wages. States set the statute of limitations for lawsuits about payment of private loans; the time period usually ranges from three years to a decade. But the lender can continue trying to collect the debt for as long as they want.
Will My Loans Eventually Go Away if I Can’t Pay?
If you stop paying your student loans, they will not go away. Other debt, such as mortgages or car loans, can be discharged during bankruptcy, but student loans generally cannot. There are a few specific cases in which federal student loans can be forgiven, canceled, or discharged.
This includes suffering from a total permanent disability or having your school close while you’re attending or soon after you leave. But it’s very rare that you can legally stop paying your loans altogether, even if you didn’t finish school or can’t find a job in your industry.
What if I’m Experiencing Financial Hardship?
If you are having a tough time with your finances or are putting off making a late student loan payment, don’t just ignore your loans; instead, approach your lender or loan servicer to discuss your options.
For federal loans, you might be able to qualify for a deferment or student loan forbearance, allowing you to temporarily stop or reduce payments. If you’re in deferment, depending on the type of loan you have, you may not be responsible for paying the interest that accrues during the deferment period. Among other reasons, you can apply for deferment if you’re in school, in the military, unemployed, or not working full-time.
You can apply for forbearance if your student loan payments represent 20% or more of your gross monthly income, if you’ve lost your job or seen your pay reduced, if you can’t pay because of medical bills, or if you’re facing another financial hardship, among other things. Private lenders are not required to offer relief if you’re facing hardship, but some, including SoFi, do.
Will I Be Sent to Collections if I Do Not Pay My Student Loans?
It is possible that if your student loan is in default it may be sent to a collections agency. Federal student loans in default are managed by the Department of Education’s Default Resolution Group. The Default Resolution Group oversees collections for all federal student loans that are in default, so they are not sent to a private collections agency.
Private student loans may be sent to a collection agency as soon as the loan enters default, which is generally after 90 days of nonpayment.
What if I Don’t Expect My Situation to Change Anytime Soon?
Deferment, forbearance, and relief offered by private lenders are temporary solutions. If your financial hardship looks like a long-term issue, you’ll need a permanent fix.
With federal loans, you may be eligible for an income-driven repayment plan. The government currently offers four plans that aim to make payments affordable by tying them to your monthly income. Which plans you qualify for depends on the types of loans you have and when you took them out.
The payments range between 10% and 20% of your discretionary income, and if you make them on time, the balance is eligible to be forgiven in 20 or 25 years, depending on the plan. Private lenders don’t offer similar plans, and they aren’t required to.
But it’s always worth explaining your situation to the lender and seeing if they can work with you on a feasible repayment plan. It’s in their interest to continue collecting even partial payments from you, rather than seeing payments stop altogether and having to go through the trouble of lawsuits or referrals to collection agencies.
Why You May Want to Consider Refinancing
Another potential long-term solution to unaffordable payments is student loan refinancing. With a private lender like SoFi, you can refinance federal student loans, private loans, or both. This involves obtaining a new loan to pay off all of your old ones and committing to the new terms and interest rate.
Refinancing your student loans makes sense if you qualify for a lower interest rate, which, depending on the term you choose, may be able to cut down the money you spend in interest over the life of your loan. Or, if you choose a longer term than you originally had when refinancing, you could lower your monthly payments, which can make the loan more affordable for you now (though of course the lifetime cost of the loan would be higher).
When you refinance with SoFi, you won’t pay any origination fees to refinance, and if your financial situation improves down the line, you won’t face prepayment penalties. It takes just two minutes online to figure out whether you qualify and the potential rates you can obtain.
Missing student loan payments can have serious consequences, including entering default. Late payments have the potential to impact your credit score or enter default. Federal student loan options to rehabilitate their defaulted student loans.
Refinancing could be an option to consider for borrowers looking to secure a lower interest rate. Consider SoFi — where there are zero fees for refinancing student loans and qualifying borrowers can secure a competitive interest rate.
What happens if I’m late on a student loan payment?
If you are late on a student loan payment, the loan will be considered delinquent. The loan will remain delinquent until a payment is made, or other arrangements — such as deferment or forbearance — are made.
Does a late payment on a student loan affect credit?
A late payment may have a negative impact on your credit score. Federal loans will be reported to the credit bureau if they remain delinquent for 90 days. Private student lenders may report a late payment to credit bureaus after 30 days.
What happens if you miss a student loan payment by 270 days?
If you fail to make payments on your federal student loan for 270 days, the student loan will enter default. Consequences of default can be serious, such as the total balance of the loan becoming due immediately.
Private student loans may be considered in default after 90 days.
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